Telecommunications Technology Transfers Contents

CHAPTER 6 Telecommunications Technology Transfers Contents

Page INTRODUCTION ...... 185

TELECOMMUNICATIONS IN THE MIDDLE EAST ...... 186 Telecommunications Systems ...... 186 Manpower Requirements ...... 190 Telecommunications Systems in the Middle East...... : . 191 Perspectives of Recipient Countries and Firms ...... 211 Perspectives of Supplier Countries and Firms ...... 227 IMPLICATIONS FOR U.S. POLICY ...... 236 CONCLUSIONS ...... 237 APPENDIX 6A. – TELECOMMUNICATIONS PROJECT PROFILES IN SELECTED MIDDLE EASTERN COUNTRIES...... 238 Saudi Arabian Project Descriptions ...... 238 Egyptian Project Descriptions ...... 240 Algerian Project Description ...... 242 Iranian Project Description ...... 242

Tables Table No. Page 51. Market Shares of Telecommunications Equipment Exports to Saudi Arabia From OECD Countries, 1971, 1975-80 ...... 194 52. Selected Telecommunications Contracts in Saudi Arabia ...... 194 53. Market Shares of Telecommunications Equipment Exports to Kuwait From OECD Countries, 1971,1975-80 ...... 198 54. Selected Telecommunications Contracts in Kuwait ...... 198 55. Market Shares of Telecommunications Equipment Exports From OECD Countries, 1971, 1975-80 ...... 202 56. Market Shares of Telecommunications Equipment Exports to Algeria From OECD Countries, 1971,1975-80 ...... 204 57. Market Shares of Telecommunications Equipment Exports to Iraq From OECD Countries, 1971, 1975-80 ...... 206 58. Selected Telecommunications Contracts in Iraq ...... 206 59. Market Shares of Telecommunications Equipment Exports to Iran From OECD Countries, 1971, 1975-80 ...... 208 60. Saudi Arabian Telecommunications Budgets As Compared to Total Budgets ...... 212 61. U.S. Competitive Position in Telecommunications Markets in the Middle East Between 1974 and 1982 ...... 233

Figures Page l0. Apparent Telecommunications Sector Breakdowns-Saudi Arabia, 1974-82 ...... 195 11. Apparent Market Share, Saudi Arabia, 1974-82 ...... 196 12. Apparent Sector Breakdowns-Kuwait, 1974-82 ...... 197 13. Apparent Market Share-Kuwait, 1974-82 ...... 200 CHAPTER 6

Telecommunications—. — Technology——. Transfers

INTRODUCTION The countries of the Middle East realize the Middle Eastern countries, through their importance of modern, efficient telecommuni- PTT’s (post, telephone and telegraph) minis- cations systems to their future development tries have made major investments in telecom- and security. Middle Eastern leaders consid- munications infrastructure during the past er telecommunications as important a part of decade. In many cases, subscribers have only their infrastructure as roads and ports. This recently begun to feel the impact of telecom- is reflected in several of the 5-year plans and munications, yet the experience has generated budgets of Middle Eastern nations. Kuwait, a set of rising expectations and further de- in particular, wants to become a regional and mand for sophisticated equipment and serv- international financial center and has devel- ices among business and industry, govern- oped telecommunications capabilities neces- ment agencies, the military services, and sary to reach this goal. The centrality of tele- residential users. A number of factors have communications to development planning is contributed to this growing demand for tele- also reflected in cooperative regional efforts communications, among them the perceived such as Arabsat, a regional satellite commu- novelty of the improvements, prestige asso- nications system. ciated with telecommunications as a sign of modernity, and the utility of improved com- There is today great disparity in telecommunications in achieving other development munications systems in the Middle East. goals. Some countries, like Kuwait and Saudi Arabia, have extremely modern, efficient systems; The rapid expansion of national and regional others like Egypt have comparatively dated telecommunications systems in the Middle equipment and systems which are much less East has made the region a major new mar- reliable. ket for equipment sales, operation and maintenance, consulting services, and training. With the notable exception of Algeria (and This continuing transfer of technologies has in a few cases, Egypt), the countries under increased the capabilities of these countries to study have opted for the most advanced tele- expand their commercial and industrial bases; communications systems available-whether to improve domestic communications; and to microwave transmission networks, satellite explore possibilities for regional and interna- communications, or automatic electronic tional cooperation. On the other hand, con- switching. Kuwait and Saudi Arabia in par- tinuing dependence on foreign suppliers, and ticular have used their financial resources to the use and control of the systems, are some- purchase state-of-the-art technology. This has times controversial issues associated with allowed them to “leapfrog” conventional tech- these technology transfers. nology, becoming testbeds for some technology so new that it is not installed anywhere This chapter first examines the present sta- else in the world. Iran and Iraq found some tus of the telecommunications systems in each of the most sophisticated systems as best of the six study countries and in the region. suited to their needs. Algeria, in contrast, Perspectives of recipient and supplier coun- opted for more conventional technologies in tries and firms are then discussed. U.S. sup- order to lessen dependence on foreign exper- pliers have won sales of all types of telecom- tise and to promote indigenous equipment munications equipment and services in manufacture. countries such as Saudi Arabia and prerevo-

185 186 ● Technology Transfer to the Middle East ——.-—————— —— lutionary Iran, but overall, U.S. firms have not In assessing competition among suppliers and been a dominant force in telecommunications implications for U.S. policy, special attention trade in the region. In the world telecommu- is paid to the role of supplier government fi- nication market, U.S. firms have lost ground mincing in competition for sales of telecommu- to Japanese suppliers during the past decade. nication technology.

TELECOMMUNICATIONS IN THE MIDDLE EAST TELECOMMUNICATIONS mechanically or electronically. Electromechan- SYSTEMS ical switching uses analog technology, wherein mechanical (dialing) and voice signals are Telecommunications systems generally in- transformed into a continuous signal of vary- clude: 1) telephone and telex equipment, 2) ing frequency and used to activate the transmission equipment, 3) mobile radio, 4) switches. Electronic switching uses electronic video and radio broadcasting equipment, and devices to connect circuits and usually in- 5) data communications equipment. During volves computer-controlled (software) circuit- the past decade, telephone and telex have been ry. It can operate using analog or digital tech- the major imports of the Middle East, mak- nology (see box A). ing up well over 50 percent of total imports Digital technology converts dialing and of telecommunications equipment and services for most countries. Transmission equipment voice signals into discrete electrical pulses that form computer-understandable streams of in- imports have been the second largest, valued formation. Because it uses the power of a com- at 20 percent of total telecommunications im- puter, digital switching technology can offer ports in some cases. The following section additional subscriber services such as abbre- briefly explains the application of the major viated dialing, call transfer, conferencing, telecommunications technologies in each of speed calling, call cost readouts, and reliable these categories. billing. Technically, digital technology is an Telephone and Telex Equipment improvement over analog equipment because it results in less deterioration of the trans- A standard telephone set consists of an ap- mitted signal, higher speed, and simultaneous paratus that includes a telephone transmitter, transmission of multiple calls. At the same receiver, and switchhook. Other types of tele- time, because digital technology is more so- phone equipment used onsite by a subscriber phisticated, use by local personnel in develop- are coin telephones, answering machines, in- ing countries may be more difficult. Indeed, tercoms, call restrictor devices, and station software engineers for digital systems are in accounting systems. A telex is a direct-dial short supply worldwide, not just in develop- telegraph service wherein subscribers can com- ing countries.1 municate directly through circuits of the pub- Almost all of the world’s telephone plants lic telegraph network. Teleprinters (instru- evolved using analog transmission; most of ments with a typewriter keyboard and printer) them will remain so for years to come because send and receive messages through the of the billions of dollars invested. However, system. it is probable that if telecommunications com- Both telephone and telex use switching panies were to start anew, telecommunications mechanisms to interconnect the circuits of channels would be almost entirely digital, with the equipment. Manual switching requires a the possible exception of the local “loops” be- switchboard staffed by an operator, while automatic switching can be performed electro- ‘Information provided by Continental Page, December 1983 Ch. 6—Telecommunications Technology Transfers ● 187

Box A.—Analog v. Digital Transmission There are two basic ways in which information of any type can be transmitted over telecommunication media: analog or digital. Analog transmission entails transmittal of a continuous signal in a continuous range of frequencies. Sound consists of a continuous spread of frequencies from about 30 to 15,000 Hz (Hertz, or cycles per second), or at most 20,000 Hz for persons with excellent hearing. (Sound cannot be heard by humans below 30 or above 20,000 Hz.) Although it is technically possible to transmit across this large range over the telephone wires, the telephone companies, conscious of costs, transmit a range of frequencies that may vary only from about 300 to 3,000 Hz, a range wide enough to make a person’s voice recognizable and intelligible. When telephone signals travel over lengthy channels, they are packed together, or multiplexed, so that one channel can carry as many such signals as possible. The multiplexed signals have different frequencies so that they do not interfere with one another, but they are still transmitted in an analog form. Digital transmission means that a stream of on/off pulses is sent, such as occurs in computer circuits. These pulses are referred to as bits. It is possible today to transmit at extremely high bit rates such as 4,800, 9,600, and 56,000 bits per second. An analog and digital transmission signal are shown below: analog:

A transmission path can be designed to carry either type of transmission: this applies to all types of transmission paths, whether wire pairs, high-capacity coaxial cables, microwave radio links, satellite, waveguides, or fiber optics. Any type of information can be transmitted in either an analog or digital form. For example, the telephone channel is generally an analog channel, but computer data can be sent over the telephone lines by using a modem (modulator/demodulator), which converts the digital data into a continuous (analog) range of frequencies. In a similar man- ner, any analog signal can be converted to digital signals for transmission. Codecs are circuits that convert signals such as speech and television into a bit stream and convert such bit streams back into the original signal.

SOURCE: Adapted from James Martin, Future Developments in Telecommunications(Englewood Cliffs, N.J.: Prentice Hall, Inc.,1977), ch. 4.

tween a subscriber and the nearest switching those with high information-carrying capac- office. Some developing countries, such as ity. Thus, many existing wire-pair channels, Kuwait and Saudi Arabia, are installing pulse which represent an enormous financial invest- code-modulated (PCM) systems in which voice ment, could be made to carry much more traf- and other analog signals are converted into a fic. Second, whenever the signal is amplified stream of bits that look like computer data. in analog transmission, the noise and distortion is amplified with it. As the signal passes The economic factors favoring digital over through its many amplifying stations, noise analog transmission stem from two aspects of is amplified and cumulative. With digital these technologies. First, it is becoming pos- transmission, however, each repeater station sible to build channels of high bandwidth, regenerates the pulses and new clean pulses 188 . Technology Transfer to the Middle East

are reconstructed and then sent to the next taneously on one circuit. The advantages of repeater. Thus, the digital pulse train is more digital over analog technology include higher impervious than the analog to distortion in the reliability, better reception, and the transmis- signal. sion of voice, data, text, and video over the same circuit. Several factors are thus pushing the economic calculus in favor of digital transmission: Transmission lines include wire and cable for trunk lines that connect subscribers between 1. the trend to much higher bandwidth fa- two central offices or switching exchanges. cilities; Also included are coaxial cables which are 2. the decreasing cost of logic circuitry, transmission lines consisting of a small cop- which is used in coding and decoding the per wire insulated from another conductor of digital signals and in multiplexing and larger diameter (usually a copper braid). Coax- switching them; ial cable is often more desirable than wireless 3. the increase in capacity that results from transmission equipment in that it is more se- use of digital repeaters at frequent inter- cure for transmitting sensitive information vals on a line; and it provides high-quality service unaffected 4. improvements in codec design, enabling by changing weather conditions. Other trans- speech to be encoded into a smaller num- 2 mission lines include wiring within the ex- ber of bits; and change and cable laid underwater (submarine 5. the rapidly increasing need to transmit cable). digital data on the networks. High-frequency radio (other than mobile) in- Facsimile systems transmit information on volves wireless transmission and is often used a written page by scanning the page electron- for military applications. Microwave uses ically and more rapidly than one character at high-frequency, highly directional radio sig- a time. Their benefits include more rapid trans- nals (above 890 megacycles per second) to mission of written material than via telex, the transmit multiple communications channels elimination of typographical errors, and the (broadcast or video circuits between two possibility of transmitting graphics. Facsimile points that have relay stations). The quality machines are gaining popularity in the Mid- of transmission is comparable to that of coax- dle East, where difficulties have been encoun- ial cable. Repeater or relay stations receive tered in transferring Arabic script to electronic signals through antennas, amplify them, and keyboards. Current choices in facsimile sys- retransmit the signals to the next station. tems involve low-, medium-, or high-speed models and analog or digital equipment. Two types of microwave systems are available, line-of-sight and over-the-horizon. Line- Transmission Equipment of-sight systems permit transmission in relay links of about 30 to 35 miles on average, al- Transmission equipment enables transmis- though single links of 100 miles may be pos- sion of information within the exchange area sible if ground terrain permits. Transmission and on short- or long-distance hauls. The can extend to distances of 3,000 to 4,000 miles transmission can involve physical connections with many links. In comparison to cable trans- between two points (“wire”), or transmission mission, attractive features of line-of-sight sys- which occurs through a space (“wireless”). It tems are high and flexible channel capacity, can involve analog technology that enables easy expansion of capacity, shorter installa- only one telephone conversation per circuit, or tion time, and better adaptation to difficult digital technology that enables many tele- terrain. Over-the-horizon systems often use phone conversations to be transmitted simul- .—. tropospheric scatter technology to span longer 2 See Box A for definition of cock. Bits are binary digits which distances (up to 700 miles) without relay links. can take on one of two values, typically written as ‘‘O or ‘‘ 1. Signals are diffracted in the atmosphere. Be- Ch. 6—Telecommunications Technology Transfers . 189 — —-.—-———————— . . cause of the long distances, these systems are path by using different time intervals for dif- useful for transmitting across large bodies of ferent signals. This technique is less expensive water. They require very large antennas and to implement than frequency division multi- very high-powered transmitters and thus tend plex, but is not compatible with frequency di- to be costly and sometimes unreliable. vision multiplex systems and is not suitable for a large number of channels. Finally, pulse Fiber optics are composed of fine glass fibers code modulation obtains a number of channels that transmit information by converting dig- over a single path by modulating each chan- ital electrical impulses into light beams. The nel on a different frequency and demodulating information is carried through the fibers, it at the receiving point. which physically connect sender and receiver. These fibers are smaller and lighter than con- Satellite transmission uses a satellite placed ventional copper wires and can carry much in geostationary orbit4 to communicate tele- more information than a typical metal cable phone, radio and television, and data signals. using digital signals. A single optical fiber, for The satellite operates essentially as a micro- example, may carry thousands of telephone wave relay in the sky, receiving microwave sig- calls. Optical fibers can carry a mix of signals nals and retransmitting them to Earth. The simultaneously—telephone, cable television, Earth station is a dish-type antenna that re- radio, video, and data. They can also transmit ceives and transmits. signals four times farther than metal cables without repeaters to amplify the signal. Mobile Radio The fibers are manufactured with glass of Mobile radio involves radio service between high silica content and few impurities. The raw a fixed station and one or more mobile sta- materials used in making glass fibers, unlike tions. Land mobile radio includes conventional copper, are among the world’s most plentiful mobile radio and mobile telephone (mobile sta- substances. 3 They also do not conduct electri- tions hooked into a central public telephone city and are not subject to electromagnetic in- switching network). The new cellular type of terference, which means less “noise” in data mobile telephone system allows a higher user communications. Fiber optic transmission is —. . .———. — difficult to intercept or interfere with and is 4 A geostationary orbit is that of an object traveling about adaptable to hazardous conditions, making it the Earth's equator at a speed matching the Earth's rotation, thcrcby maintaining a cOnstant relat,iOn to c(’rtain point+ on useful in many military applications. This the Earth. technology is, however, still comparatively experimental for long-haul distances and costs are higher than for other transmission methods. There are three types of multiplexer, which enable the simultaneous transmission of several channels on a single circuit. There are three types. Frequency division multiplex transmits two or more signals on a common path by using different frequency bands for each signal. Those with large capacity can carry, for instance, one television channel and 600 to 900 telephone channels on a single microwave carrier. Time division multiplex transmits two or more signals on a common 190 ● Technology Transfer to the Middle East

density in a geographic locale but requires so- requirements for operating and maintaining phisticated computer control. Paging systems equipment. Contracts for supply of equipment are small frequency-modulated (FM) one-way almost always include requirements that the radio receivers which page individuals. Many supplier maintain the equipment for some pagers can occupy a channel if receiving only years. As the discussion that follows shows, data messages rather than voice. Current some of the most advanced telecommunica- choices include tone only or tone and voice tions technologies require less maintenance paging. Marine radio involves radio transmis- than traditional equipment. Telephone oper- sion between two units at sea or between sea ations (the center of these systems) remain, and land, and air-ground communications in- however, labor-intensive. volve radio transmission between aircraft and Because skilled manpower shortages are a the ground for navigation and communica- major factor constraining effective absorption tions purposes. of telecommunications technologies in many of the countries under study, it is important Video and Radio Broadcasting Equipment to note that modem analog telephone systems Closed circuit television (CCTV) includes are more people-intensive than digital electron- cameras, monitors, receivers, control consoles, ic systems. As a rule of thumb, approximately scan converters, and lines interconnecting the 150 employees are required for every 10,000 system with the receivers. Radio broadcast lines of analog equipment, compared with 135 transmitters and studio equipment include to 145 employees for digital lines. The skill mix amplitude-modulated (AM) and FM transmit- also differs, with more college-trained techni- ters, antennas, lines, consoles, and recording cal personnel and computer and programing and playback equipment. Television broadcast specialists required for digital systems. transmitters include very high frequency An advantage of electronic switching sys- (VHF) and ulta-high frequency (UHF) trans- tems (ESS) compared to electromechanical mitters, antennas, Lines, consoles, recording switching systems (EMSS) is that EMSS re- and playback equipment, cameras, and mobile quires 10 to 20 inside plant personnel per vans. 5 10,000 lines in order to maintain (continually oil and adjust) the switches. The work force Data Communications Equipment consists primarily of semiskilled laborers. In Data communications equipment connects the electronic system, only one inside plant computers to the telephone network. Up to person per 10,000 lines is needed; the system 4,800 bits per second of data can be trans- is almost unattended. The central operation mitted on regular voice telephone lines. Mod- and maintenance center has a computer mon- ified lines enable faster data transmission. itor that keeps track of the system. If a fault This equipment includes concentrators, mod- occurs in a line, it is registered and reported ems, multiplexer, and data communications on teletype. The system identifies the faulty switching. printed circuit card, and a skilled worker (who has a supply of all needed types of circuit MANPOWER cards) is then sent to replace the card. The re- REQUIREMENTS pair is thus a card-changing procedure, not a “work-bench” operation. The faulty card is From the perspective of Middle Eastern returned to the manufacturer for repair or countries importing telecommunications tech- disposal. nologies, a central concern is with manpower Servicing and maintaining telecommunica- “a Very high frequency” refers to a band of radio frequencies tions equipment is a major issue in the Mid- between 30 and 300 megahertz. “Ultra-high frequency” refers dle East, and particularly in Saudi Arabia and to a band of radio frequencies between 300 and 3,000 megahertz. Kuwait. Saudi nationals are generally not Ch. 6—Telecommunications Technology Transfers ● 191 —— . — trained in maintenance functions; these tasks are left to foreign nationals. In Kuwait, the Japanese consortium that installed and conducted initial servicing on the telephone systems was called back after 3 years of local maintenance; the local maintenance reportedly left the system in need of major overhauls.’ All of the major suppliers provide extensive training programs. U.S. firms that were inter- viewed, however, noted that nationals often lack motivation and that supplier personnel normally are required to perform maintenance. With foreign contractors involved in servicing and maintenance, the installed equipment ,, !,: reportedly functions well. Analysis of con- Telephone equipment provided to Egypt under the tracts in the six nations under study indicates U S Commodity Import Program that much of the equipment purchased since the early 1970’s is still serviced by foreign suppliers. Telephone operations tend to be very labor- intensive. The more advanced the telecommu- The harsh physical environment of the Mid- nications technology, the higher the propor- dle East further hampers maintenance of tele- tion of professional, technical, and managerial communications equipment. Digital systems personnel required and the fewer total work- require air conditioning and special modules ers required. The skill mix also differs, with to protect equipment from dust and sand. more college-trained technical personnel and Where required, these elements are always in- computer and programing experience required cluded by suppliers as part of the equipment for digital systems operations. Skilled man- package. These special applications further power shortages have been a major factor con- complicate maintenance procedures and nor- straining effective telecommunications tech- mally prolong dependence on the supplier. nology absorption in the Middle East. In These problems associated with mainte- Egypt where unemployment has been a prob- nance clarify the preference of Middle East- lem, decisions about telecommunications tech- ern leaders for some of the more advanced nologies have been made to take account of technologies. Digital switching, for instance, broader social goals. The result has been that operations are less efficient, judged by inter- is less expensive to maintain then analog 8 switching. Similarly, microwave relays can national standards. often last thousands of hours between repairs, while cable networks require almost daily TELECOMMUNICATIONS maintenance. SYSTEMS IN THE Manpower requirements in telecommunica- MIDDLE EAST tions are geared heavily toward clerical and craft workers. As a point of reference, in the Saudi Arabia United States the telephone subsector of com- Saudi Arabia has taken the advanced-tech- munications clerical workers comprise 45 per- nology route to telecommunications. Working cent of the total work force, and craft work- . ers 33 percent.7 8 For example, ARENTO in Egypt employs more personnel than are needed in order to help solve the country’s high —— . . . . -—— unemplo~ment problem. The 1 W! 1 statistics show that f+;g~pt ‘” ‘, Japan ‘1’[l(’c’~Jtl>l ]lunic:itiIJrls 1<1 ngint’crin~ and (’t)n~ult)ng haci ot’er 1,000 emplo~’ees per 10,000 lines (,AT&T I,ong I.ines, (,J ‘1’f”~ (‘ I -– Kuwait i{[luc’t,2int [’art rl~, r, \licfdle 1<.’a.st F;(’ono[r]ic” 7“ht1 t{’orfd ‘.s Telephones, itlorris f}lains, N,tJ.. 1982), which is f)f~est, oct. 1.>. 19X2, p !)(). six or se~’en times greater than the ratio deemed adequ at[’ for [ S llur(au of I,al)rjr Stat istic~. I)ull(tin ::20h6, \pril 1981 efficient operations, 192 ● Technology Transfer to the Middle East — — -— closely with foreign firms, the country has King Khalid City, Hofuf, Salwo, and Dawa- built an extremely efficient telecommunica- heen, and Riyadh with Dormah and Zolam. tions network. The system was implemented by Western Electric International of the United States and The network was greatly expanded in the includes 300 microwave towers with a 35,000 - last decade, with the number of exchange lines line capacity. Microwave links have also been quintupling between 1976 and 1981. In 1982 established between Saudi Arabia and Sudan, there were 789,000 telephone subscribers, or with a capacity of 300 telephone lines and 92 11.2 lines per 100 inhabitants, just over the 9 television channels. A smaller, local digital world average of 10.5 lines. This coverage is microwave system was implemented by Telet- quite extensive by Middle Eastern standards, tra of Italy in Riyadh to link government given that the World Telephone Zone 9 (Mid- buildings with certain government official dle East and Southeast Asia) average is 1.1 residences. lines per 100 inhabitants. Much of this telephone expansion began in 1978 with the Saudi Arabia’s domestic satellite communi- awarding of a contract to L. M. Ericsson of cations network, Domsat, links 11 cities— Sweden and Philips of the Netherlands to in- Jeddah, Riyadh, Medina, Hayel, Abha, Bor- stall 480,000 new telephone lines. ayda, Tabik, al-Bahah, Jizan, Najran and al- Jawf. Harris Corporation of the United States Of the six countries under study, Saudi Ara- supplied the mobile Earth stations with 11- bia has the second highest percentage of auto- meter antennas to link with Intelsat satellites. matic telephone operation, with 99.4 percent As of 1979, three Earth stations for use being automatic switching system control through Intelsat were installed by Mitsubishi (97.1 percent electronic control [ESS] and 2.3 Electric Company of Japan—two in Riyadh percent electromechanical control [EMSS]). 10 and one in Taif-with a total of 569 circuits. Saudi Arabia is also the only country which has private telephone operations, which en- Saudi Arabia has begun to experiment with compass 12 percent of the total telephones. domestic optical fiber transmission systems. With regard to telephone use in the Kingdom, A 45-kilometer, 6-fiber cable has been installed 70 percent are for residential use (60 percent- by Philips in Jeddah and Riyadh. The ex- main, 10 percent-extension) and 30 percent are changes have a capacity to handle 1,920 tele- for business use (20 percent-main, 10 percent- phone calls per fiber. ” extension). By 1980, 1,200 public pay telephones had Several large-scale projects have been com- been installed in 23 towns and cities. By 1982, pleted to enhance the transmission network. 2,000 mobile telephones had become operation- The Backbone Telecommunications Project al, having been integrated into the exchanges consists of 1,420 kilometers of east-west coax- installed earlier using Ericsson technology. In ial cable between Taif and Dammam via Ri- addition, a fully electronic, multiplex-exchange yadh and a 160-kilometer microwave link be- telex system was completed in 1979. Using six tween Jeddah to Taif via Buhr, Mecca, and computers, it has a capacity of 15,000 lines al-Hada. The work was performed by Sartelco, and serves 100 cities and towns. It was devel- a Saudi Arabian-based subsidiary of Sirti oped by a Saudi Arabian prime contractor, (Italy), using cable from Philips. Hajji Abdullah Alireza Group, in cooperation with Fredericks Electronics Corporation The Intra-Kingdom Microwave Communi- (U.S.). cations Project enhances long-distance trans- —— —— — mission for telephone and television and cov- ‘“J. Chamieh (cd.), Saudi Arabia Yearbook (1.ebanon: The Re- ers 10,000 kilometers. It links Al-Ain with search and Publishing House, 1981 ). 1 I International Trade Administration, U.S. Department of 9 AT&T, Long Lines, The World Telephones, Morris Plains, Commerce, “Market Survey: The Telecommunications and Elec- N. J., 1983. See also Robert Bailey, “Telecommunications,” Mid- tronic Data Communications Market in the Middle Flast, ” dle East Economic Digest, Nov 18, 1983, p. 14. Washington, D. C., 1982. Ch. 6–Telecommunications Technology Transfers ● 193

There are currently 12 telex machines per The system in Saudi Arabia is highly re- 10,000 inhabitants in Saudi Arabia, which, on sponsive. Bell Canada reported that: 1) 94 per- average, is the highest ratio in the world.12 Fac- cent of customers in Riyadh receive operator simile terminals and other data transmission services within 10 seconds, 2) 75 percent of na- equipment are also being imported. Facsimile tional long distance calls are answered with- machines are popular in the Middle East, since in 10 seconds, 3) almost 80 percent of direc- they scan and transmit an entire page elec- tory assistance calls are answered within 10 tronically and thus are ideal for communicat- seconds, and 4) nearly 50 percent of calls to ing information in Arabic. international operators are answered within 10 seconds. The system is also reliable: 90 per- Saudi Telephone is managed by Bell Canada cent of all calls are successful, and 98 percent under contract. Bell Canada has also assisted of subscribers receive a dial tone within 3 in establishing eight repair service centers— seconds. 16 in Riyadh, Jeddah, Dammam, Abha, Taif, Mecca, Medina, and Borayda. Ericsson has es- During the 1970’s, imports of telecommu- tablished four computerized operation and nications equipment underwent tremendous maintenance control centers at Riyadh, Jed- growth-from OECD countries it went from dah, Damman, and Taif to trace faults in the $17.4 million in 1971 to $740.6 million in 1980 system. An engineering department has been (in nominal dollars).” The beginning of the Sec- set up with recent Saudi engineering gradu- ond Development Plan in 1976 ushered in a ates, assisted by Bell Canada staff. Also, two rapid increase in telecommunications imports. permanent 32-room training facilities in Ri- Also, a large influx of population in the cities yadh and Jeddah with two mobile training between 1974 and 1980 increased demand on units have been established. Bell Canada con- the existing infrastructure and spurred major ducts training, averaging 60 hours per stu- telecommunications expansion projects, car- dent, in Arabic and English with advanced ried out primarily by Ericsson of Sweden and courses provided in Canada.13 Philips of the Netherlands. During 1970 to 1980, the volume of telecommunications im- Saudi Arabia has adopted advanced technol- ports amounted to 2 percent of Saudi Arabia’s ogy in all telecommunications sectors-switch- total import volume and almost 4 percent of ing, transmission networks, mobile telephones, world imports of telecommunications equip- and telex. Partly because of this, Saudi Tele- ment. A slight retrenchment in telecommuni- phone has improved productivity and reduced cations import spending began in 1980, owing its manpower ratio by 10 percent to 43 em- to an increased focus on agriculture, industry, ployees per 1,000 working lines. During this and health sectors in the Third Development rapid expansion period, despite continuing Plan and to completion of some major seg- system enhancements and increased usage, ments of the networks. service is reportedly satisfactory. In 1980, more than 1 million international calls per Three supplier countries are prominent in month were completed by 500,000 subscribers Saudi Arabia’s telecommunications market, as (annual average of 24 calls per subscriber); 58 shown in table 51. Table 52 shows selected percent of these calls were made directly by telecommunications contracts awarded by the subscriber.14 In 1981, total international Saudi Arabia. Firms from the Netherlands and calls topped 17 million, with the most calls go- Sweden together have accounted for more ing to (rank ordered) the United States, Ku- than half of the contracts, in terms of dollar wait, Great Britain, and Bahrain.15 value, in recent years. U.S. firms had a 16 percent share in 1980, which represented a ma- 12 Ibid, 1 jor shift from the mid-1970’s, when they had ‘,\liddJ( Ea.sf J;conomir l~igest, Sept. 1 /+. 1981. “ltobert llaile~r, “Saudi Arabia, Telecommunications, L;leL- approximately a 30 to 48 percent share of the tronic’s, and the Nliddle f’last—Special Report, .tfiddle East Saudi Arabian telecommunications market. I;conomic Digest, ,Januaqr 19%1: International Telecon~munication Union ( ITU), I’earbook of C’Ommm Carrier Tekwrm]um”ca- ———.. tion Statistics, Geneva, 1980. 16 Saudi Arabia Yearbook, op. cit., 1 WI. ‘ ‘AT&T, op. cit., 1983. 17SITC #764, 7249. See table 51. Table 51 .—Market Shares of Telecommunications Equipment Exports to Saudi Arabia From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United West United Total exports Canada States Japan France Germany Italy Netherlands Kingdom Sweden (in 000 U.S. $) 1971 ...... 0.3 15.1 2.4 11.1 1,4 2.2 0.0 55.9 10.4 17,406 1975 ....., . . 0.4 21.4 8.5 2.9 8.2 7.9 0.7 18.5 14.1 92,814 1976 ...... 6.5 28.0 3.2 1.6 3,8 5.4 2.3 36.5 10.6 134,756 1977 ...... 2.8 47.9 4.7 6.3 5,2 5.3 0.6 14.8 10.8 288,246 1978 ...... 1.5 33.9 4.2 1.8 4,1 4.0 21.5 9.4 18.5 568,962 1979 ...... 1.4 17.7 4.3 2.3 2,7 4.3 31.6 13.3 19.7 883,836 1980 ...... 0.8 15.9 4.9 4.0 4,4 0.7 44.0 7.1 16.0 740,561 NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters SOURCE Compiled for OTA from Organization for Economic Cooperation and Development (OECD), Trade of Commodities Market Summaries Exports (1971 1975-80)

Table 52.—Selected Telecommunications Contracts in Saudi Arabia — Amount Supplier country Year Supplier Description (millions of dollars) Canada ...... 1978 Bell Canada Management of Saudi telephone system 1,000 Norway ...... 1977 Teleplan Management of telephone network expansion 185 United Kingdom...... 1978 Preece, Cardew, and Rider Design and supervision of telecommunications network 22.3 France/Saudi Arabia . . . 1982 Cegelec Contracting Co. (joint Construction and maintenance of communication network 14.3 venture company) Italy/Saudi Arabia ., . . . 1981 Sirti/Sartelco Installation of telecommunications system in Yanbu 65 Japan...... 1982 Nippon Electric Co. (N EC) Supply of fiber optics communications system linking Ras 16 Tanura with Barri and Abgaig with Dhahran Netherlands/Sweden/ 1977 Philips/L. M. Ericsson/ Increase telephone network from 200,000 lines to 1.2 million 4,400 South Korea/Norway . . (6 phases) Dong Ah/NorconsuIt by installing world’s first stored program control (SPC) system United States ...... 1979-82 Litton Industries (Sub: Aydin Improve military communications systems, provide national 1,720 (4 phases) Corp. and Karkar Electronics) air defense communications network, provide digital multiplex equipment — SOURCE Compiled for OTA from selected issues of the Middle East Economlc Digest Ch. 6— Telecommunications Technology Transfers . 195 —.— — —

Saudi Arabia invested between 1974 and applications such as air traffic control and mil- 1982, approximately 62 percent of telecommu- itary and industrial communications. nications expenditures for telephone and telex, 20 percent for transmission, 15 percent for Kuwait video and radio, 2 percent for mobile radio, and 0.1 percent for data communications (see fig. In 1981, Kuwait’s telephone exchange ca- 10). For telephone and telex (1974-82 total ex- pacity reached 286,200 lines, a 100 percent in- penditures of $8,035 million), the largest allo- crease over 1979. The number of lines in ac- cations were made in the switching and total tive use numbered 171,427, with 231,640 communications subsector. U.S. firms main- telephones connected to these lines. This tain slightly more than 30 percent of this mar- amounts to about 15.8 telephones per 100 res- ket, with firms from Sweden and the Nether- idents, the highest ratio among the six coun- lands holding about 20 percent shares each. tries in this study. Despite this relative abun- In transmission equipment sales, firms from dance of capacity, forecasts of population South Korea captured 49.2 percent of the growth and business demand have lagged be- sales, due to their role in expansion of the hind actual growth. As a result, while some Saudi cable network. In video and radio equip- exchanges have excess capacity, others can- ment sales, U.S. firms had a minor share of not meet the demand. In some newly devel- 7.6 percent, while those from France had 70 oped areas, businesses and residences report- percent and dominated this market. U.S. firms edly must wait 2 to 3 years for a telephone, had an over 90 percent share in mobile radio owing to shortages of lines and equipment. Al- and data communications, but these repre- most two-thirds of all telephones are residen- sented only about $290 million total expendi- tial; the rest serve business. tures by Saudi Arabia from 1974 to 1982 (see The system is 100 percent automatic: 89.9 fig. 11). percent EMSS and 10.1 percent ESS. All By far the major growth areas in Saudi tele- switching equipment installed between 1980 communications over the last decade have and 1982 is fully electronic digital systems. been in development of integrated communi- There are 16 local telephone exchanges and all cations systems. The Philips-Ericsson-Dong telephone operations are government-run. Ah-Norconsult-Bell Canada consortium has re- Three Earth satellite stations are linked to ceived the major share of this market and has both the Atlantic and Indian Ocean Intelsat effectively closed off the market to other sup- networks. Domestically, a mobile telephone pliers. U.S. and U.K. firms have been supply- system is in place, with 4,019 mobile units in ing communications systems for specialized use as of 1981. In 1979 an electronic telex en- change of 7,500 lines was completed by Oli- Figure 10. —Apparent Telecommunications Sector vetti of Italy. Breakdowns—Saudi Arabia, 1974-82 Kuwait had only one TV broadcasting station in 1979, but a second channel was to be available later that year. The station range includes Bahrain and parts of Iraq and Saudi Arabia. Estimates of TV receivers number Mobile radio—2% . 375,000, and radio receivers number 1 million.

I The Kuwait telecommunications system has generally been a reliable network. Recently, Telephone and telex—62% however, there have been localized problems. Kuwait’s development began earlier than that in most neighboring countries and many difficulties can be traced to the strain imposed SOURCES: Complied for OTA from Intel-Trade: Inbucon. 1980: MEED Tele- communications by explosive population growth on systems be 196 ● Technology Transfer to the Middle East —.— ——— —

Figure 11 .–Apparent Market Share, Saudi Arabia, 1974-82

Total telephone and telex—$8,035 + million Switching equipment—$6,369 4 + million

United Kingdom— 10.6% United Kingdom— 12.7% Netherlands-24.40/0

Norway— 2.9% West Germany— 1.92% Italy— 1.0% ltaly— 0.82% — - Sweden-24.7% / France— 0.2% i Saudi Arabia— 0.1% Japan— 0.1% u United States—38.8% Belgium— 0.2% Saudi Arabia— 0.1% Japan— 0.2% France— 0.6%

Training, maintenance, consulting— $1,3971 + million Total transmission—$2,596.2 + million

United States— 6.0% Italy- United Kingdom— 3.9% United States- 11.4 ”/0 31.6% Sweden–- 2.3% - Japan-– 2.22% _ Saudi Arabia— 0.2% - Saudi Arabia—0.2% Sweden— 0.2% , South Korea—49.7% Netherlands— ‹0.1% [ I

Total video and radlo - $2,000.7 + million Total mobile radio—$266.5 + miIlion

United States— 7.6%

Norway— 3.4% 1 Unknown—2.2% Japan— 3.3%, . Saudi Arabia— 0.9% - Saudi Arabia— 0.3% c — / Finland— 0.7% I Ch. 6—Telecommunications Technology Transfers ● 197 —. — —.——..—.—

Figure 12.— Apparent Sector Breakdowns— est of the six countries, it provides the great- Kuwait, 1974-82 est amount of capacity to its population and is the most heavily used. Given Kuwait’s small population and geographic area, its recent development of the Mobile radio—4 most extensive and most used telecommunications network among the six countries reflects Video and radio—4%€´ its desire to become a world business and financial center. This requires an excellent communications system, especially international- Telephone and telex—75’% ly. Kuwait’s extensive satellite transmission facilities and data transmission capabilities, and its recent purchases of high-technology equipment to expand its telecommunications network are evidence of the commitment to SOURCES: Compiled for OTA from Intel-Trade: U.S. State Department cables this goal. ginning to age. The Communications Minis- Early expansion of oil production capacity try has adopted two sets of measures to deal of Kuwait in the 1950’s resulted in large de- with the problem—several contracts for rehab- velopment expenditures throughout the late ilitation of the cable network, and more reli- 1960’s and 1970’s. Expenditures in the tele- ance on microwave links and other technolog- communications sector reached almost 3 per- ically advanced equipment. Its major cent of all Kuwaiti imports in 1970. Imports shortcoming is in keeping up with localized de- of telecommunications equipment, parts, and mand, which requires accurate planning for ex- accessories from OECD countries rose from changes that require excess capacity in order $7.7 million in 1971 to $90.1 million in 1980 to support future increased needs. One of the (in nominal dollars) as shown in table 53 and worst problems for Kuwait’s telecommunica- represented from 0.2 percent to 0.7 percent of tions users has nothing to do with outmoded world telecommunications imports. Table 53 or overburdened equipment, but with routine also lists the market share of telecommunica- loss of service due to cutting of cable by con- tions equipment exports to Kuwait from OECD tractors working on roads and buildings. To countries in 1971 and 1975 through 1980. alleviate this problem, a utility management As shown in the table, Japanese firms have system will be installed by a Japanese consor- controlled between one-quarter and one-third tium at a cost of $28 million. This system will of Kuwait’s telecommunications market dur- include computerized mapping of all under- ing the 1970’s. Kuwait’s ties with its former ground utility networks in the 500-square-kil- l8 colonial ruler Britain are still strong, as evi- ometer city. denced by a large volume of British exports Kuwait’s average of telephones per 100 in- in this sector to Kuwait. Over the last decade, habitants is 15.8, well above the world aver- Swedish firms have had several large con- age of about 10.5. Moreover, usage of the sys- tracts in telecommunications, but failed to tem by subscribers is the highest among the maintain a stable foothold. Firms from West countries under study—an average 20.4 inter- Germany and the United States have suc- national calls per subscriber during 1980. ceeded in gaining about 15 percent each of Ku- While Kuwait’s telephone system is the small- wait’s market. Table 54 shows selected telecommunications contracts awarded in Kuwait. Kuwait investment in the telecommunications sector from 1974 to 1982 was approxi- Table 53.—Market Shares of Telecommunications Equipment Exports to Kuwait From OECD Countries, 1971, 1975-80 (SITC 764 or 7249) —— United West United Total exports —.States Japan Belgium France Germany Italy Netherlands Kingdom Sweden Switzerland (in 000 U.S. $) 1971 ...... 4.3 38.5 4.9 0.8 4.8 0.0 0.6 15.6 10.9 1.5 7,700 1975 ...... 11.8 15.7 2.4 12.5 7,3 4.6 0.4 10.6 30.4 2.2 16,742 1976 ...... 26.8 20.0 0.5 18.2 10.1 3.0 0.1 6.1 10.8 0.5 52,701 1977 ...... 20.2 22.0 0.4 4.8 3.3 4.2 0.1 21.3 16.8 4.8 55,315 1978 ...... 5.8 23.1 1.2 3.8 5.8 1.0 0.6 28.4 17.9 9.1 68,506 1979 ...... 5.6 35.6 0.7 2.2 10.3 0.7 0.9 11.7 28.6 1.4 68,534 1980 ...... 14.3 26.8 0.5 1.7 15.5 0.8 3.2 23.1 10.8 0.5 90,084 .— NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters SOURCE Compiled for OTA from OECD, Trade of Commmodities Market Summaries Exports (1971, 1975-80)

Table 54.—Selected Telecommunications Contracts in Kuwait — Amount Supplier country Year Supplier Description (millions of dollars) France ...... 1980 CIT-Alcatel and Coaxial cable linking Kuwait and Safwan, Iraq - 5.0 Cables de Lyon United Kingdom...... 1981 Pye Ltd. Complete communications system for Kuwait police 10.8 United Kingdom...... 1980 Pye Telecommunications Telecommunications network maintenance 5.9 Sweden ...... 1979 L. M. Ericsson Telephone exchange extension; AXE type equipment 15.0 Kuwait ...... 1980 Abdel-Aziz Abdel-Mohsin Underground cable installation 7.0 al-Rashid Kuwait ...... 1981 Kuwait Prefabricated Buildings International telephone network extensions—Salmiya Exchange 7.5 Company Japan ...... 1980 Nippon Electric Co. Satellite ground station installation; repairs on NEC station 4.4 completed in 1966 Japan...... 1980 Japanese Telecommunications Telephone network consultancy for management improvement, Consulting and Engineering planning of repairs, preparation of specifications for 7.4 international tenders, provision of training

Japan...... 1981 NEC Install one central microwave station and six auxiliary ones. Design 13.0 is by Kuwait Ministry of Communications United States ...... 1979 Ampex international Supply of mobile television unit with auxiliary equipment 1.5 SOURCE Compiled for OTA from selected issues of the Middle East Economic Digest Ch. 6—Telecomrnunications Technology Transfers ● 199 —— mately 75 percent in telephone and telex, 17 trast with the larger, multiexchange, crossbar percent in transmission, and 4 percent each in automatic switching equipment used in Cairo mobile radio and video and radio (see fig. 12). and Alexandria. As figure 13 shows, in contrast to the situa- In 1979 an Alexandria exchange was reno- tion in Saudi Arabia, Swedish firms have been vated by CIT-Alcatel (France); their E-10 dig- dominant suppliers of telecommunication ital electronic exchange equipment supplied equipment in a number of categories. 10,000 lines. Ericsson of Sweden supplied 20,000 lines at Al-Mazha in Cairo in 1979. Ex- Egypt tensive cable and microwave linkages (sup- The number of telephone lines in Egypt in plied by Raytheon of the United States) con- 1981 was estimated at 375,000 lines for be- nect the smallest exchanges to Cairo, where tween 400,000 and 500,000 telephones.19 Ap- most of the international traffic flows. Other proximately one-half of the telephones are res- international switchboards exist in Alexandria idential and one-half commercial, yielding and Port Said. International calls are handled about 1.2 lines per 100 inhabitants, a very low by two submarine cables with 480- and 230- ratio. Telephone service availability varies channel capacities or via an Earth satellite sta- widely by geographical location, as large ur- tion linked to the Intelsat Atlantic Ocean ban areas have a telephone density of 4.35 per network. 100 population while other areas have a den- 20 For training purposes, CIT-Alcatel has in- sity of 0.36 per 100 population. In 1978 the stalled an E-10 model exchange in the Arab waiting list of subscriber applications num- Republic of Egypt National Telecommunica- bered 200,000 with only 48 percent of regis- 21 tions Organization (ARENTO) training center. tered demand being met. The telephone sys- Continental Telephone and Arthur D. Little tem is operated by the government and is 89.2 are both being funded by the U.S. Agency for percent automatic. International Development (USAID) under-its By all reports, in recent years Egypt tele- $200 million loan and grant program to phone system has been generally antiquated ARENTO to supply managerial and technical (some parts dating back to 1929) and in poor advice. repair. A 1978 master plan developed by Con- Two telex exchanges operate in Cairo and tinental Telephone International of the United Alexandria, and mobile telephone service has States recommended major rehabilitation of and extensions to the Egyptian system, upon been established in the Cairo area. In addition, special microwave transmitters, using tropo- which the government acted by awarding a major contract to a European consortium in spheric scatter technology, have been established to facilitate communications between 1980. Small exchanges in remote villages often cities, oil terminals, gas plants, and offshore consist of manual switchboards. These con- 22 —— oil complexes. 19 U.S. Department of Commerce, “Marketing in Egypt, ” O;rerseas Business Report, 81-31. 1981. “’AT&T, op. cit., 1983. —— ———-.— “R. J. Saunders, ,J. J. Warford, and B. Wellenius, Telecom- *’Tropospheric scatter technology involves use of radio fre- munications and Economic lle~’efopment, JHU Press, published quency waves reflected off the troposphere and received at a for The W“orld Bank, July 1983. distant station on Earth.

35-5137 0 - 84 - 14 : QL 3 200 s Technology Transfer to the Middle East — — -—. .—

Figure 13.—Apparent Market Share—Kuwait, 1974.82

Switching equipment — $269.3 + million

United Kingdom— 2.8% + Unknown— 2.2% _ Japan— 0.8% — West Germany— 0.6% - (Ericsson) lndia— 0.1%

)

Total transmission — $754 + million Total video and radio—$15.5 + million

France-9.70/0 Kingdom–- 0.8%, 1 India— 0.2% ,

Radio and television broadcasting is well de- numbers were frequently inoperable, and 50 veloped. A network of 24 radio transmitters percent of all service vehicles could not be have the capability of reaching the entire pop- used, owing to lack of spare parts. Moreover, ulation. Fourteen transmitters have short- the report concluded, Egypt’s current prob- wave range and the 10 others are medium- lems could be attributed, in part, to the many wave. Between 6.6 million and 6.8 million radio different types of equipment in the system receivers exist, according to 1979 estimates. supplied by many different firms. Mainte- Twenty-eight television transmission stations, nance and interoperability problems could some with color capability, reach 1.3 million arise in the future, the report warned, if simi- receivers and 7 million people.23 lar procurement strategies are followed in rehabilitating and expanding the system. The 1978 Continental Telephone study as- sessed the efficiency of the Egyptian commu- Attempts have been made recently in the nications network. Study participants found Egyptian telecommunications sector to make that only 23.9 percent of all calls dialed in its administration more efficient and cost ef- Cairo were completed, emergency telephone fective. Outside consultants in the late 1970’s stated that some of the major problems plagu- ing the Egyptian telecommunications opera- Ch. 6— Telecommunications Technology Transfers ● 201 tions stemmed from the inclusion of telecom- went from $11.9 million in 1971 to $180.4 mil- munications in the public sector. As a result, lion in 1980 (nominal dollars).27 Telecom- 1) realistic rates and tariffs could not be set munications equipment comprised about one for telecommunications service or equipment percent of the Egyptian budget and from 0.2 installation, 2) employees could not be easily to 0.9 percent of world imports in telecom- hired and fired, and 3) all money went into and munications during these years. came out of a central revenue fund, allowing As shown in table 55, France’s position in for no fiscal autonomy. The consultants rec- the Egyptian telecommunications market has ommended that telecommunications be made continued to grow. CIT-Alcatel and Thomson- an autonomous public entity, much like Egypt CSF are major French firms, along with West Air or the Suez Canal Authority. German and Austrian companies, doing busi- Egypt’s response was to pass law No. 153 ness in Egypt. Thomson-CSF won a major in 1981, which established the National Orga- $1.8 billion contract to overhaul and expand nization for Wire and Wireless Telecommuni- the Egyptian telephone network. Great Brit- cation, whose shares are 100 percent owned ain and Sweden have also held sizable and fair- by the government. The organization still re- ly stable market shares. ports to the Ministry of Communication but The share held by U.S. firms has expanded is otherwise autonomous. Although it is still substantially over the last decade, from 2.6 too early to gauge the long-term effects of this percent in 1971 to 17.9 percent in 1980. This change, tariffs and installation charges have was due partly to Egypt improved relations recently risen to more realistic levels, and the 24 with the United States. USAID grant and new organization can retain its own earnings. loan programs to rehabilitate the Cairo Redundant labor will continue to be a prob- telephone system have provided major oppor- lem, however; attrition has not eased the bur- tunities for introducing U.S. telecommuni- den. The problem will become more severe cations firms into the Egyptian market. when the electromechanical switches in the Telephone and telex was the major area of Egyptian system are converted to electronic investment in the telecommunications sector switches, displacing many semiskilled work- 25 by Egypt from 1974 to 1982, accounting for ers. For many reasons, major layoffs of these 83.5 percent of total telecommunications ex- personnel are not expected. penditures. Transmission accounted for 11.7 By far, Egypt’s telephone system is the percent, while video and radio, and mobile least extensive of the six countries in this radio accounted for 4.5 percent and 0.2 per- study. It reaches just over 1 of every 100 in- cent, respectively. Of the over $2,300 million habitants. As for system usage, 1977 statis- spent on telephone and telex, France had a 36 tics show low international usage (an average percent share; West Germany, 26 percent; of 1.1 international calls per subscriber in Austria, 26 percent; Sweden, 5.5 percent; and 1977) but high domestic use (an average of the United States, 5 percent. Of the $324 mil- 50.0 national calls per subscriber that year).26 lion total spent by Egypt from 1974 to 1982 on transmission, U.S. firms dominated, with Imports of telecommunications equipment, a 48 percent share. Those from West Germany parts, and accessories from OECD countries had a 28 percent share; Japan, 10 percent; and Great Britain, 9 percent. The major shares of the video and radio expenditures of $123 million from 1974-82 went to firms from Great

‘“OF;CII 7’rade of (’ommoditr’e.s: .Ifarket .Sumn]aries. i;xport, s, 1971, 1975-80, see table 55, Table 55.— Market Shares of Telecommunications Equipment Exports to Egypt From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United West United Total exports States Japan France Germany Italy Netherlands Kingdom Sweden Switzerland (in 000 U S $) 1971 ...... 2.6 2.0 16 25.9 3,0 0.2 13.0 43.6 1.2 11,886 1975 ...... 2.7 17.8 26.3 8,5 0.7 0.4 15.2 21.9 22 59,479 1976 4.2 9.5 25,6 9.3 3.7 0.8 30.4 13.5 13 70.377 1977 ... 14.4 2,5 23.7 10.0 0.6 0.5 31.6 12.9 1.8 97,262 1978 ...... 16.8 5.3 26,0 10.8 3,7 1,0 14.9 14.4 1.2 141,882 1979 ...., 14.4 9.3 36,3 8.6 3.2 1.0 11.2 12.1 0.4 183.286 1980 ., ... , 17.9 8.5 31.2 4.4 3.9 4,3 14.7 10.7 0.6 180.440 NOTE: Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters SOURCE Compiled for OTA from OECD Trade of Commodities Market Summaries Exports (1971, 1975-80)

I Ch. 6— Telecommunications Technology Transfers s 203 —.—. —.—. — —— —

Britain (47 percent), Japan (29 percent), the ports have made up about 1.5 percent of the United States (17 percent), and France (6 total. Algeria represented from 0.3 (1970) to percent). 1.7 (1976) percent of world imports of telecommunications equipment, parts, and accessories Algeria from 1970 to 1979. The number of telephone lines in Algeria is During the 1970’s, Algeria’s national plans approximately 606,000. The telephone system emphasized investment in heavy industry and is government-run and involves only 63.1 per- development of natural gas resources. Asso- cent automatic switching. About two-thirds ciated development of a satisfactory telecom- of registered telephone demand has been met.28 munications infrastructure was critical to Twelve satellite ground stations have been in achieving these investment goals. Algeria’s existence since 1979 for domestic telephone, extensive use of satellite technology for much telex, and television transmissions, connecting of its domestic transmission network has fa- 14 Saharan towns with major population cen- cilitated communication linkages to the ma- ters. An international Earth satellite station jor population centers from natural gas fields, connects Algeria to the Atlantic Ocean Intel- mining areas, and industrial production comsat network. All major towns are connected plexes across vast areas of sparsely populated to Algiers by telex, and several have their own desert. international telex linkages.29 Table 56 presents the market shares of tele- Television and radio broadcast centers are communications equipment exports to Alger- located in Algiers, Oran, and Constantine. ia from OECD countries in 1971 and 1975-80. Radio transmissions operate on medium and France has historically been a large supplier short wave, covering territory well beyond to Algeria. By 1980, French firms held 28 per- Algeria’s borders. Microwave linkages with cent market share, much reduced from their France ensure reception of European televi- 79 percent share in 1971. Algeria has attempted sion broadcasts. By 1982, there were over 2 to diversify its technology purchases for po- million radio receivers and 350,000 television litical reasons and to improve its position in receivers in the country. negotiating prices for its liquefied natural gas. 30 Despite the rather limited coverage of the telephone system—3.3 telephone lines per 100 U.S. firms have maintained their market inhabitants—domestic usage by subscribers share in the Algerian telecommunications is relatively high, with an average of 31.2 do- area. This share has, however, fluctuated no- mestic calls per subscriber in 1979. To deal ticeably. Some observers believe that Algeria’s with geographic difficulties in network trans- support for the Palestinian movement and its mission, Algeria opted for advanced satellite nonalignment policy may serve to stimulate systems for part of its domestic operations. diversification of suppliers, rather than exten- Algeria’s telephone service is, however, fre- sive purchases from U.S. firms. quently unreliable and slow, with long-dis- Telephone and telex represented 68 percent tance service usually surpassing local service. of the Algerian telecommunications market Algerian imports of telecommunications from 1974 to 1982; transmission, 30 percent; equipment, parts, and accessories peaked in and video and radio, 2 percent. Total telephone 1976 at about $140 million. The 1976 figure and telex expenditures during this period were represented slightly less than 3 percent of Al- approximately $456 million, with Spain win- geria’s total imports. In recent years these im- ning 70 percent of this, Sweden winning a 27 percent share, and the United States, 2.5 per- -’U.S. I)epartment of Commerce, “\larketing in Algeria,’” 30 ()~(’rwvi.v Bu.sines.y Ii(’port, 82-07, 1982; AT&T, op. cit., 1983. Martin Roth and Michael Frost, “ Algeria W’elcomes Japa- ‘II 1, Nelson (cd,), Algeria; .4 Ccwnt~Tr Stud:” (J!”ashington. nese Export Drive, Middle East Economic Digest, Aug. 28, 1). (’,: The American Uni\ersitjr, 1979). 1981, pp. 4-5, I -. i Q s ~ 2 Table 56.— Market Shares of Telecommunications Equipment Exports to Algeria From OECD Countries, 1971, 1975-80 (SITC 764 or 7249) I ~ , United West United Total exports I K Ingdom Sweden Switzerland (In 000 U.S. $) States Japan Belgium Denmark France Germany Italy Spain —— I 1971 . . . . :. 0.8 0.3 0.2 0.0 790 74 2.3 59 11 00 28 13.338 1975 ...... 5.4 3.0 03 0.3 377 15.4 1.0 43 145 161 17 120.062 I 1976 .., . . 3.0 4,2 0.5 0.2 26.0 94 14 40 170 329 11 138.301 1977 ...... 9.2 8.7 27 0.3 228 100 2.3 6.6 131 227 1.6 94,908 1978. , . . . 8.9 11.9 0.9 3.3 156 215 2.0 68 95 168 11 101.048 1979 .., ., 8.2 3.1 11 2.3 180 223 1.5 5.8 200 73 8.7 128.918 I 1980 ...., 4.8 2.6 5.6 3.4 278 17.4 15 12.7 75 76 6.1 100.068 —— — I NOTE Market shares calculated as value of exports reported by exporter as a pe,.e~tar~e L’ t(]tal tde~ornrnurl, at((,,~ r. ~ t. tn reri~ ,en, ~fJpo-tPc b} ,31 I OECD ~ x .Jo~tP~~- SOURCE Compiled for OTA from OECD Trade of Comrnod/t/es ~ar~et SUrnrnarles Exports (1971 1975-80)

I Ch. 6—Telecornrnunications Technology Transfers ● 205 —. .——— cent. Of the total transmission expenditures further civilian expansion in the telecom- of $200 million from 1974 to 1982, Japan had munications area. a 53 percent share; France, 39 percent; and the Table 57 lists the market shares of telecom- United States, 6 percent. munications equipment exports to Iraq from OECD countries in 1971 and 1975-80. With Iraq more than a 49 percent market share in 1980, Statistics on Iraqi telecommunications are France was dominant. Since the mid-1970’s, largely unavailable. The number of telephones Iraq has sought a leadership role among the in Iraq numbered approximately 320,000 in Third World nonaligned nations and reduced 1977, which amounts to 2.6 telephones per 100 its technology trade with the Soviet bloc coun- inhabitants. Existing facilities include cross- tries. As a result, Japan, Britain, and the bar automatic telephone switching equipment Netherlands made minor inroads into the mar- with new exchanges installed in Baghdad, ket. U.S. firms won less than a 1 percent mar- Nineveh, and Tamim, and microwave net- ket share. Table 58 includes data on represent- works between major cities. Two Earth satel- ative recent telecommunications contracts lite stations exist at Dubail for use in inter- awarded by Iraq. national communications; they were built by By telecommunications sector, telephone Telspace, a subsidiary of CIT-Alcatel, of ] and telex have taken the major share of Iraqi France.’ A telex system located in Baghdad expenditures (58 percent). Transmission has had 1,462 lines in 1980, but a contract has taken a 19 percent share; video and radio, 17 been awarded to triple this number. The num- percent; and mobile radio, 6 percent. Of the ber of radio receivers in the country is esti- total $1,170 million spent on telephone and tel- mated at 2 million. ex between 1974 and 1982, Japan garnered 62 Based on rather scarce information, it ap- percent of the market; France, 13 percent; Yu- pears that rapid progress was being made pri- goslavia, 11 percent; and Sweden, 2 percent. or to the war with Iran to build the capacity Of the total transmission expenditures of of the Iraqi system. Major upsurges in govern- $380 million during this time period, 45 per- ment spending, begun in the mid-1970’s, recent went to Sweden, 25 percent to Japan, 11 sulted in a near doubling of the number of tele- percent to Italy, 7 percent to Great Britain, phones. Iraq has chosen crossbar switching 6 percent to France, and 5 percent to unspe- and advanced digital systems, although usage cified suppliers. Swedish firms were particu- in Iraq is still low—among the lowest of the larly strong in wire and cable and land mobile six nations in this study. radio, while Japan and Italy were both strong Large-scale importation of telecommunica- in microwave systems. Total video and radio tions equipment by Iraq did not begin until expenditures from 1974-82 were over $340 mil- 1975, when expenditures on OECD imports lion, with France having a 54 percent market reached $65.5 million. Imports of telecom- share; Japan, 27 percent; and Switzerland, 8 munications equipment, parts, and accessories percent. Japan was dominant in television from all suppliers represented over 3 percent (with 75 percent) and France was dominant in of Iraq’s total imports and over 1.1 percent radio (84 percent). Total mobile radio ac- of the total world imports of telecommunica- counted for $115 million in this time period; tions equipment for these years.32 Shrinking Sweden had 93 percent of the market and Ja- oil exports, beginning in 1982, and the pro- pan and Great Britain had minor shares. longed war with Iran have, however, dampened Iran ——-—— —— “‘ ‘Telecommunications, I’electronics, and tht~ hliddle I’;ast— By 1979, Iran had 1,234,000 main telephone Special Report, ” )Iliddle F;a.st Economic Digest, Januar>’ 1981. ‘&[ h“. J“eartmok of International Trade .Statis[ics, op. cit., lines (95.8 percent automatic–92 percent 1982. EMSS, 3.8 percent ESS), which is approxi- Table 57. —Market Shares of Telecommunications Equipment Exports to Iraq From OECD Countries, 1971, 1975-80 (SITC 764 or 7249) — .— .—— — . — United West United Total exports States Japan Belgium France Germany Italy Netherlands Kingdom .——— .— .—— — — ——.— — Sweden Switzerland (in ——.000 U.S. $)— 1971 . . . 3.8 4.6 2.8 26.3 - 0.8 1.9 0.2 24.9 32.7 0.3 4,797 1975 ...... 2.4 26.9 1.6 19.4 7.7 3,3 0.4 22.7 6.7 5.2 65,513 1976 ... , . . 7.6 21.3 2.4 14.3 11.6 2.6 0.1 31.8 3.7 1.3 70,686 1977 ., ... 2.0 9.9 0.8 51.5 4.6 0.6 0.1 22.6 3.6 1.5 76,131 1978 ...... 0.5 14.0 0.3 42.3 2,7 0.2 11.8 20.4 1.8 4.2 185,410 1979 ...... 0.4 13.4 1.0 43.4 4.1 0.7 14.1 9.6 4.8 6.3 193,784 1980 . . . . . ————.——.——————0.8 8.2 0.3 49.4 — 2.3 1.8 7.8—. 16.7 6.1 1.1 254,860 NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunicatlons exports to recipient reported by alI OECD exporters SOURCE Compiled for OTA from OECD Trade of Commodities Market Summaries Exports (1971, 1975-80)

Table 58.—Selected Telecommunications Contracts in Iraq —— Amount Supplier country Year Supplier Description (millions of dollars) France ...... 1981 Thomson-CSF Provide 27 microwave telephone exchanges 152.0 France ...... 1980 Thomson-CSF Turnkey construction of telephone network 144.5 West Germany ...... 1977 Siemens Reinstallation and expansion of telephone exchange 0.6 Hungary ...... 1977 Elektroimpex Supply 2,500 color television sets 1.0 Italy ...... 1982 Telettra Set up two microwave systems 42.0 Japan...... 1979 Nippon Electric Co. and Construct four computerized telecommunication and video control 19.1 Mitsui Co. systems Japan...... 1981 Sumitomo Construction Co. Supply and install telecommunications facility 64.5 Japan...... 1979 Furukawa Electric Co. Supply 17 telephone networks in Baghdad and surrounding areas, 59.3 providing an additional 200,000 telephone lines The Netherlands . . . . . 1981 Philips Install telephone network 11.1 Sweden ., ...... 1981 SRA Communications Install mobile telephone system 82.2 Sweden ., ...... 1981 L. M. Ericsson Supply and install telephone cables 166.7 United Kingdom...... 1980 Cable & Wireless Expand international exchange lines 3.9 Soviet Union ...... 1981 NA Construct telecommunications center 3.3 Yugoslavia ...... 1980 Energoinvest Construct two transmission lines — 21.0 NA—not applicable SOURCE Compiled for OTA from selected issues of the Middle East Economic Digesf Ch. 6— Telecommunications Technology Transfers . 207 mately 3.4 lines per 100 inhabitants. Iran’s eral cities. One hundred and fifty cities were system is completely government-run. Eighty- equipped with modern teletype and teleprint- one percent of the lines are residential, and er systems, which replaced the old telegraph about one-half of them are located in Teheran. network. Under the Shah, three television The 1979 waiting list for subscribers channels and four radio networks were oper- amounted to 750,000, meaning that only 62 ated. Estimates of radio receiver ownership in percent of registered demand had been met. 1976 were 4.3 million households; of television Data from 1976 indicate that 8.9 million na- receivers, 1.6 million households. 34 tional calls were made that year compared 33 Iran developed its telecommunications infra- with 1.1 million international telephone calls. structure earlier than the other countries cov- The major long-distance transmission net- ered in this study. In its Fourth Development works in Iran employ microwave systems Plan (1968-72), Iran focused extensive invest- rather than multichannel cables, owing to the ment funds on building its nationwide micro- country’s difficult terrain and other technical wave networks, meeting existing demand for advantages of microwave systems. As of 1977, communication services and anticipating re- this microwave network consisted of four seg- quirements for the future, During this period, ments: 1) the CENTRO cross-country net- between 3 and 6 percent of all Iranian imports work, which traverses 2,300 kilometers and involved telecommunications equipment, and has 45 relay stations, beginning at Tabriz and Iran became a major world market for such serving Porn, Kashan, Isfahan, Nain, Yazd, items, acquiring 4.5 percent of world imports Kerman, Barn, and Zahedan; 2) the Teheran- of telecommunications equipment in 1971. Assadabad large-capacity network; 3) the Isfa- However, in 1972 and 1973, owing to a worsen- han-Shiraz network linked to Teheran; and 4) ing balance of payments and capital shortage a nationwide microwave network encompass- problems, investments in this sector declined. ing six major routes, covering 3,560 kilome- The rapid oil price increases of 1973 and ters, and having a capacity of 960 telephone 1974 at the beginning of Iran’s Fifth Devel- channels. In addition, a ground satellite sta- opment plan resulted in a major revision, dou- tion is located at Assadabad near Hamadan bling investment allocations. Expenditures on to facilitate international traffic. telecommunications projects again increased, There are direct dial facilities to 27 foreign reaching a peak in 1976 of $330.5 million. Bud- countries and 74 operator-assisted switch- get deficits caused by lower oil revenues in 1975 boards at the international telephone ex- and 1976 resulted in a leveling off of spending change. To deal with its vast geographic area, by the end of the plan period. Figures on tele- dispersed population, and rough terrain, Iran communications imports since the 1979 revo- opted for microwave transmission in the rnid- lution are not available but, based on OECD 1960’s and continued to expand this network export figures, such imports probably fell in nationwide. Despite rapid growth in exchange the early 1980’s to about one-quarter of the capacity during the 1970’s, the number of lines 1978 trade total. per 100 inhabitants (3.4) is well below the During the 1970’s, firms from the United world average of 10.5. Moreover, usage sta- States and West Germany shared the Iranian tistics by subscribers as of 1976 were among telecommunications market almost equally, the lowest of the six countries in this study– about 25 percent each, as shown in table 59. an average of 1.6 international calls and 13 do- The positions of firms from Japan, Italy, and mestic calls per subscriber in 1976. the United Kingdom fluctuated rather wide- In 1979, Iran had over 2,980 telex lines and ly from year to year but maintained an aver- automatic computerized telex centers in sev- .— “ M. Tehranian, “Communications Dependence and Dualism “ ITU, op. cit., 1980. in Iran, Intermediary, vol, 10, No. 3, 1982, pp. 40-44. ~ Table 59 .—Market Shares of Telecommunications Equipment Exports to Iran From OECD Countries, 1971, 1975-80 (SITC 764 or 7249) m — United West United Total exports Canada States Japan Belgium France Germany Italy Netherlands Kingdom Switzerland (in 000 U.S $) 1971 . . . . 6.5 15.2 219 1.2 3.9 22.1 19.7 0.3 5.6 25 91,859 1975 . . . . . 4.3 23.8 13,9 2.1 7.8 26.8 9.2 0.4 80 10 207,965 1976 6.9 38.0 77 04 5.7 247 7.4 0.2 63 1.2 330.461 1977 . . . . 4.6 27.0 9.0 08 11.8 244 98 05 9.5 0.7 252.898 1978 . . . 0.9 226 127 07 7.5 21.1 91 94 13.2 18 315,323 1979 . . . . 0.0 219 7.2 0.2 4.9 29.8 187 104 5.0 13 139.420 I 1980 0.0 0.0 173 0.2 2.0 32.6 32.7 14 9.5 21 75,069 NOTE Market shares Calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters — 1 SOURCE Compiled for OTA frem OECD Trade of Commodities Market Summaries. Exports (1971, 1975-80) I

I Ch. 6—Telecommunications Technology Transfers “ 209 . — — — — —— age of only about 10 percent of the market other hand, the benefits of the system will de- each. pend upon who controls it and how it is used. In light of the different approaches these coun- Market shares, as could be expected, have tries have taken to television broadcasting and shifted since Iran’s revolution. With the their different political stances, they will be United States effectively out of the picture, challenged to produce joint broadcasts. Fur- Japan and Italy have been the beneficiaries, thermore, decisions taken by leaders in each assuming 17.3 and 32.7 percent of the market, country about what types of broadcasts should respectively, in 1980. West Germany strength- be shown could limit information available to ened its position to 32.6 percent of OECD local viewers. Thus, the advanced technology telecommunications exports to Iran by 1980. embodied in Arabsat’s planned system could Telecommunications sector breakdowns in be used to expand or restrict information Iran between 1974 and 1982 were approxi- flows, depending on how the broadcasting is mately 70 percent for telephone and telex, 27 handled. percent for transmission, and 3 percent for The first Arabsat satellite is now scheduled video and radio. Supplier market share in each for launch in November 1984 on a European of these sectors has changed dramatically Space Agency (ESA) Ariane launcher. The sec- since the revolution. As a historic reference ond was scheduled for launch by NASA’s point, telephone and telex shares in 1974 were 36 shuttle STS-25 Atlantis in May 1985. A third United States, 74 percent; Japan, 13 percent; will be kept as a spare. Each satellite will have Sweden, 6 percent; and the United Kingdom, s7 an operational lifetime of 7 years. The main 7 percent. U.S. firms had an 85 percent share ground control station will be in Riyadh, and of transmission equipment exports to Iran. an auxiliary station maybe located near Tunis. For video and radio, France had a 77 percent share, the United Kingdom had 14 percent, The concept of Arabsat grew out of a 1953 and the United States had 8 percent. Arab League agreement to develop effective telecommunications links throughout the Mid- Regional Telecommunications Development dle East region. This agreement led to the creation of the Arab Telecommunications The Middle East has focused attention on improving telecommunications among neigh- Union (ATU) in 1958 and its affiliated Arab Satellite Communications Organization boring Arab countries. Several regional proj- (ASCO). ASCO is made up of five permanent ects are under way, many having received their impetus from a telecommunications development plan for the Middle East drawn up by the International Telecommunication Union (ITU) in 1978.35 The largest regional project being planned “’’’Space Shuttle Payloads and Experirnents, ” S1’S Itlissions, is Arabsat which promises to bring significant 1 through 81, Rockwell International, December 1983. This will be the first flight for Atlantis. benefits to countries of the region through im- ‘-’’ Arabsat: A Giant Step for the Middle East, ” ,Iliddle }+~ast proved communications. The system as planned F~corIonic Digest, oct. 15, 198’2, p, 84: “Ford Aerospace to Bui]d will provide the capability for expanded and Arabsat, ” At”iation W“eek and Space 7’echnolo~, June 1, 1981, p. 24; Illiddle East ~;conomic Dikrest, Special Report — Tele- more efficient communications not only among communications, October 1983. p. 8: Ali A1-M ashat, ‘‘I)ata Con]- countries in the Middle East, but also between munications Ser\’ices in the Arabsat S\’stem, paper presented them and other parts of the world. Therefore, at the 2nd Gulf Computer Conference—Dubai, Dec. 14-15, 1982. ‘1’o illustrate the potential that the s?’stem presents for control- on the one hand: the technology may be used ling information , Arabsat has reportedl~’ considered encrypting to promote free flows of information. On the tclmision broadcasts so as to ensure that the~’ can be recei~’ed onl}’ b}’ appropriate members and that signals cannot be in- “The ITU is a specialized agency of the United Nations, com- tercepted. See ‘‘Arabsat Satellite’s Control Signafs \$’ill Be F~n- prising varitJus for-a which plan and administer the details of cr}pted, ” .4 \iation \$’eek and Space Technolok?-, hla~’ 21, 1984, international telecommunications. pp. 1 76-177. 210 ● Technology Transfer to the Middle East —. — —— . . . ——

members (Saudi Arabia, Libya, Iraq, Kuwait, In 1976, Comsat, of the United States, was Qatar) and four members elected by the gen- given a $100 million contract to provide tech- eral assembly for 2-year terms. The general nical consulting for the Arabsat program. Po- assembly consists of the member countries’ litical issues delayed the program. The con- Posts and Telecommunications ministers and tracts for building the three satellites were is the governing body of the organization. In awarded in May 1981 to Ford Aerospace 1969, the Arab States Broadcasting Union (United States) and Aerospatiale (France). The (ASBU) was formed. final U.S. export license approval was not granted to Ford Aerospace until February In 1972 several of the governments of the 1982. Aerospatiale was reportedly named as Middle East asked the United Nations Devel- the prime contractor because Ford was on the opment Program (UNDP) for assistance in set- Arab boycott list. However, Ford received 59 ting up a telecommunications network in the percent of the total contract value ($79 of $134 Middle East and the Mediterranean. The million) and has the largest share of the work. UNDP asked the ITU to study technical as- Ford provides the antennas, propulsion units, pects of such a plan. In the first 5-year phase power converters, communications subsys- of the study, ITU drew up a master telecom- tems, and altitude control systems. munications plan for the region, compiled from detailed local surveys. It focused on creating Another $40 billion telecommunications and improving satellite, land, and submarine master plan— MEDARABTEL–formulated telecommunications links among the several by ITU and funded by the U.N. Development countries (28 sponsoring governments ap- Program and participating countries, is now proved the master plan in 1978—Iran, how- being implemented. In June 1982, Telettra ever, was not one of them). ITU estimated that (Italy) and Thomson-CSF (France) obtained an the expenditures for just the international por- $18 million contract based on this plan for a tions of the work would reach $3,000 million microwave link between Saudi Arabia, North by 1990. Egypt, Iraq, Kuwait, Lebanon, and South Yemen, Djibouti, and Somalia. The Oman, Saudi Arabia, and the United Arab plan also includes extended telecommunica- Emirates (UAE) will contribute 35 to 40 per- tions links with Europe and national and in- cent of the cost; UNDP will contribute a sim- ternational transmission routes for radio and ilar share, and the rest will come from non- television broadcasting. Arab Mediterranean States. Other regional projects under way or In the second 5-year phase, ITU conducted planned in the Middle East include: 1) inter- subregional feasibility studies with an empha- national sea navigation satellites; 2) trans-Gulf sis on improving communications in the Red cable links; 3) an intercontinental submarine Sea area by using microwave and submarine cable between Saudi Arabia, Singapore, Indo- cables. The third phase will look at the ground nesia, and Sri Lanka, costing about $500 mil- network and the training of Arab nationals in lion; 4) a coaxial cable link between Algeria, telecommunications and broadcast engineer- Tunisia, Morocco, and Libya; 5) a coaxial cable 38 ing and management. The master plan also link between Kuwait and Iraq in which CIT- suggested diversifying the telecommunica- Alcatel of France and BICC Telecommunica- tions routing so as to increase reliability. Plans tions of Great Britain are involved; and 6) a are also being made for an intra-Gulf coaxial telephone network being built by Philips of the cable linking the UAE, Qatar, Bahrain, and Netherlands along a l,200-kilometer highway Saudi Arabia, with a later extension to linking Syria, Jordan, and Kuwait via Kuwait. Baghdad. There are few discernible trends yet in technol- 38 Middle East Economic Digest, Oct. 15, 1982; Times of Lon- ogy trade for projects awarded for regional work. don, Feb. 2, 1981. Arabsat, the ITU plan, and MEDARABTEL Ch. 6—Telecommunications Technology Transfers ● 211 . should create a great deal of business in ex- amount is set aside for finishing ongoing proj- panding transmission networks, including ects, such as the Telephone Expansion Pro- Earth stations, submarine and coaxial cables, gram and the Intra-Kingdom Microwave and microwave systems. Project. Stress has been laid on expansion of the The telecommunications budget for the 5- transmission network. By far the largest sub- year plan and the first three yearly budgets sector of expansion has been satellite systems, are presented in table 60. Expenditures have with U.S. firms holding 76.5 percent of the fluctuated on a yearly basis since the begin- market and French firms the remaining ning of the plan and appear to be ahead of shares. In microwave systems, the Italian firm schedule. Between 1980 and 1982 alone, over Telettra captured a 65.4 percent share. $6.8 billion was allocated in yearly budgets. France’s Thomson holds 34.6 percent of that While the value of contract awards in telecom- market. Overall, in the transmission sector, munications throughout the Middle East fell which represented $283 million in expendi- from 13.9 percent in 1982 to 4.2 percent in tures from 1974 to 1982, the principal actors 1983, Saudi Arabia increased its purchases in have been U.S. firms with 63.2 percent of the this sector from $570 million in 1982 to $1,726 market, followed by French firms, with 23.9 million in 1983.40 percent.” Demand for telecommunications equipment in Saudi Arabia is expected to continue to rise PERSPECTIVES OF RECIPIENT during the next 5 to 10 years as the telecom- COUNTRIES AND FIRMS munications modernization program is completed. Government ministries and public cor- Saudi Arabia porations have accounted for about 85 percent The rapid expansion of the Saudi telecom- of the purchases of equipment and services; munications network has resulted in one of the of this, 80 percent is purchased by the PTT most modern systems in the world. The Posts, and the Ministry of Information. Other min- Telegraphs, and Telecommunications Minis- istries are building new headquarters and have try (PTT) has not been averse to introducing a need for large private automatic branch ex- advanced technologies-they have installed change (PABX) systems. the world’s first nationwide stored program To conduct business with the Saudi Arabian control telephone system, used electronic dig- government, a local agent and office is re- ital switching, employed microwave and sat- quired. Joint ventures with Saudi interests are ellite transmission extensively, and experi- also encouraged. In evaluating responses to mented with fiber optic transmission. Given tenders, Saudi ministries reportedly give pref- the size of the projects, the rapidity of imple- erence to 100 percent Saudi-owned firms over mentation, and the sufficient funding of the 51 percent Saudi-owned joint ventures. These program, it is likely that the firms, as well as firms are, in turn, favored over agent-repre- the technologies involved will gain increased sented foreign companies. In business, Saudi credibility in the international market. Arabian customs reportedly emphasize trust The highest levels of expenditure in the and personal contact as the basis for consum- most recent Saudi Arabian 5-year plan are for mating business deals. municipalities, electricity, education, civil The largest purchaser in the private sector aviation, health, roads, and desalinization. is ARAMCO, which operates an independent Telecommunications allocations are next on 27,000-line phone network, but demands will the list, representing about 3.7 percent of total increase from other purchasers as hotels, uni- expenditures, or $8.7 billion. Most of this

41‘1’1, op. cit., 19~2 212 ● Technology Transfer to the Middle East —

Table 60.—Saudi Arabian Telecommunications Budgets As Compared to Total Budgets (in millions of U.S. dollars) 1980-84 Plan 1979-80 1980-81 1981-82 1982-83 Total budget ...... $237,100 $48,500 $71,418 $86,868 ‘$91 .357 Telecommunications. . . . $ 8,700 $ 1,429 $ 2,574 $ 2,154 $ 2,080 Video and Radio ., ., NA NA NA $ 459 $ 461 Percent of total ... 3.7 29 3.6 3.0 2.8 SOURCE J Shaw and D Long Saudi Arabian Modernization The Impact of Change on Stability The Washington Papers New York Praeger 1982); Edmund O'Sullivan Saudi Budget Shifts Emphasis From Infrastructure to Human Resources Middle East Economic Digest Apr. 30 1982, pp 1618 versities, airports, office buildings, and indus- Growth in capacity often reveals hidden de- trial facilities are completed. mand. So it is with subscriber usage of the expanded telephone system in Saudi Arabia. In Minimum requirements for all equipment 1977, with only 200,000 subscribers, the aver- are the norms recommended by the ITU’s 41 age number of international messages per sub- CCITT and CCIR. U.S. modifications to 42 scriber was 5.8 calls. In 1980, with 700,000 these standards appear to be acceptable. Pri- lines in operation, each subscriber initiated vate equipment connected to the public sys- over 24 international calls. tem must be approved by the PTT’. For broadcasting equipment, important long-term While there appears to be relatively high supplier decisions are made when particular usage by current subscribers, the physical ca- contracts are awarded, since European and pacity of the network commissioned may ex- American systems are often not compatible. ceed the expected demand through 1990 by Often, the detailed requirements for specific about 500,000 lines. Saudi Arabia is, however, projects are drawn up by foreign consultants building now in anticipation of future demand, to the PTT. This is true in Saudi Arabia, where given projected rates of urbanization and in- Arthur D. Little, Norconsult, Swedetel, ITU, dustrial growth. and Preece, Cardew, and Rider have worked One indicator of the ability to absorb tele- on the plans and requirements for large telecommunications technology is the number of communications programs and then served on 43 employees per 10,000 phone lines. For a par- the bid evaluation committees. ticular quality of service, the fewer persons re- The telecommunications subsector likely to quired the more efficient the operations. In receive the greatest attention over the next 1980, the total number of employees was given decade is that of telephone and telex. With as 12,571, or 284 per 10,000 lines; an estimate goals to once again double phone capacity and for 1981 showed an improvement with 189 per to increase telex capability, large projects are 10,000 lines.44 By comparison, AT&T used likely to be awarded. Established suppliers 102 employees per 10,000 lines in 1982.45 These who have won the confidence of Saudi Arabian figures also compare favorably to the estimate officials and who have long experience in the of 140 employees per 10,000 digital lines for market are in the best competitive positions. inside and outside plant operations. This means that Ericsson and Philips in the Although the figures describe a Saudi sys- switching and user equipment area and Cable tem in transition, they show increasing effi- and Wireless for telex may benefit particularly ciency by employees in operating and main- from the projected expansion. taining the equipment. The numbers are .— supported by other information on Saudi Tele- 41 The International Consultative Committee for Telegraph phone (Sauditel). While 62 percent of Sauditel and Telephone (CCITT) and the International Consulting Com- mittee for Radio (CCIR) are two of the ITU's largely autonomous permanent organizations. 44D. Fargo, “World Telecoms Tell Their Plans for Growth, ” 42 Intel-Trade, May 15, 1979. Telephone.}’, Sept. 24, 1979, pp. 88-111. 43 U.S. Embassy, Riyadh, Market Research of Telecommunica- 45 AT&T, Statistical Report, AT&T, Basking Ridge, N. J., tions Equipment, February 1980. 1981. Ch. 6—Telecornmunications Technology Transfers “ 213 — —. ——.— employees were nationals in 1981, the propor- in these categories, vital to effective absorption of Canadian supervisors was being re- tion of telecommunications technologies.” duced. The employment goal for the company is 80 percent Saudi nationals.46 Nationals hold Computer training programs have been established at Sauditel’s data center and by the all public interface positions and many man- National Guard. Telecommunications and agerial roles. Saudi Arabian personnel aim to broadcasting training institutes have also take over parts of the training program them- been conducting programs in Riyadh and Jed- selves. dah since 1971. However, these programs have Saudi nationals, once trained, reportedly not attracted the number of trainees originally have good ability to operate telecommunica- envisioned and have reportedly experienced tions equipment. While some with prior edu- high dropout rates.50 cation in the United States are already Most contracts for telecommunications oriented to Western technology, those who are equipment currently include training (in Eng- products of the Saudi Arabian educational sys- — —. —— tem have reportedly sometimes faced difficul- ‘ ‘Industrial Studies and Dcw’elopment (’enter, .4 (;uide to ln- ties in moving from rote learning to programs du.~tria] IX’\wlopnmnt in Saudi .4r4hii), ~ii~’adh, 1 97’7, centered around understanding causes and ef- “,$liddle 1.;:]s[ b;conon]ic l)i~yst —Spmi:i] ii(~port on Saudi fects of operations. ..\r:~bia, ,Ju1}T 19S 1: ITA, op. cit., 1982. Planned growth in telecommunications capacity takes into account anticipated growth in demand in conjunction with Saudi Arabia’s rapidly growing population.47 At the same time, the country has been experiencing a large influx of population into the cities since 1974. The average population growth rate in urban areas was 7.6 percent annually between 1970 and 1980. In comparison to the overall national rate of growth, this urbanization ef- fect is extreme and may present future problems in that certain exchanges may be over- crowded while others are underutilized. With an estimated 70 percent of its 2.5 million work force being foreign, Saudi Arabia set a goal of reducing the growth of the foreign work force. Projections indicate that the overall labor force may continue to grow through the year 2000.4’ Shortages exist within the managerial, professional, technical, and skilled labor categories, which all affect the labor situation in the telecommunications sector. Esti- mates suggest that non-Saudi labor encom- passes more than one-half of the work force

“-’ Rij’adh (’ailing–12ast and F; fficientlj.’ ,Ifidd)t l.’as[ Kf”~j- nornic’ Difyl.st, .$pe~’ial Report on Saudi Arahi:i, .1 ul~ 19h 1, p. 27. ‘-SeCI (h. 4 for a discussion of ~aric)us e+t irnates of Saudi population, “’’Saudi Arahia-1’h[’ !tIanpovwr Controt’ers?’, ” .Iliddl(’ fi~a.st At ARAMCO’S Ras Tanura Industrial Training Shop, a F,’conomic Digest, Apr. 24, 1981, pp. 40-41, student tests electronic circuitry 214 ● Technology Transfer to the Middle East — lish and Arabic), operations, and maintenance in the Kingdom. By custom, women have been provisions. The training goal is often to bring segregated from men at all levels in the educa- nationals to a level of operational proficiency tional system. This has also extended to the rather than preparing them to take over all as- required use of female instructors to teach fe- pects of maintenance, which is usually handled male students. Because there have been short- through joint ventures. This has been the case ages of female instructors, educational oppor- with the Intra-Kingdom Microwave Project, tunities for women have been stymied. where Western Electric training in manage- However, the introduction of CCTV into the ment and operations and maintenance was ac- classroom has enabled male instructors to complished by Western Electric personnel for teach women. the first 12 months after installation and by As the telecommunications network reached Sartelco personnel (an Italian-Saudi joint ven- the small towns and villages in the Kingdom, ture) subsequently. Maintenance work is del- it has provided local businessmen and traders egated to foreign contractors; thus dependence with easy access to the national economy. The on suppliers continues. As discussed in the network thus has increased local employment, Saudi Arabian project profiles (included in and brought increased prosperity to the outly- app. 6A), U.S. firms bidding on the telephone ing regions. Increases in telecommunications expansion contract in 1978 had high cost esti- capabilities have also enabled the construction mates for operation and maintenance. These of refineries, industry, and exploration sites estimates may have been instrumental in loss in remote areas of the country. of the contract. Expansion of both the civilian and military Saudi Arabia encourages foreign investment telecommunications networks in the Kingdom that results in domestic assembly plants and also has had national security implications. manufacturing facilities for import substitu- The government has acted to integrate these tion. To date, there have been limited attempts networks and thus improve its command and at local manufacture in the telecommunica- control capabilities. Litton Industries, of the tions field. The Saudi Cable Company, a joint United States, is participating in this project venture with Philips, plans a major expansion. to integrate the networks. Telephone Industries Co., Ltd., a joint venture with Ericsson, was established in 1976 to man- While Saudi Arabia’s telecommunications ufacture telephone equipment, apparatus and infrastructure has grown rapidly, capacity to cable. It was licensed by Ericsson to produce absorb technology effectively has increased at cable, 50,000 lines of automatic exchange a slower pace. Accounts of Sauditel accom- equipment, 40,000 lines of PABX systems, plishments are impressive. Nevertheless, man- and 12,000 phone sets per year. By 1979, how- power shortages in managerial and skilled ever, production had not begun. In addition, technical areas present continuing problems, a Finnish company established a factory to despite efforts to establish training programs. produce TV tubes in 1977. Without plans for Absence of a domestic telecommunications in- extensive local development of a telecommu- dustry means that Saudi Arabia will be de- nications equipment manufacturing industry, pendent on foreign suppliers into the foresee- Saudi Arabia will remain dependent on foreign able future. On the other hand, there is no sources. doubt that Saudi Arabia can operate and maintain an efficient telecommunications sys- Increased usage by the residential, business, tem, because the country can afford to pay for and government sectors has revealed a pent- operations and maintenance assistance. up demand for telecommunications equipment and services. One particular application of CCTV has had a major impact on education Kuwait “The Economist Intelligence Unit, Quarterlov Economic Re- Kuwait has aspirations to be an important ~iew, I,ondon, April 1981. regional and international financial center. A Ch. 6—Telecommunlcatlons Technology Transfers ~ 215 ——-—..— reliable and advanced telecommunications net- Mid-range electronic PABX equipment (10 work is a prerequisite. Kuwait’s extensive in- to 100 lines) can be only sold to the Commu- ternational investments and foreign assistance nications Ministry, which then provides it to programs also require modern telecommunica- private users. Smaller and larger private ex- tions facilities. In addition, Kuwait Petroleum changes can be sold directly to end-users. Company (KPC) has plans to establish itself Most other equipment is marketed directly to as a major integrated international oil com- private companies and individuals, such as the pany. Such an operation requires extensive in- KPC, shipping agents, newspapers, and ternational communications to support man- banks. agement, production, and distribution. Kuwait continues to import the latest and Advanced technology transfers will also en- most advanced telecommunications systems. able the Kuwaiti government and business to Europe and Japan have come to dominate establish links with databanks overseas. many key segments of this market, where The Ministry of Communications projects American firms have lost bids owing to their a doubling of telecommunications capacity be- higher prices. tween 1980 and 1985, as follows:52 The number of local telephone exchanges is 1980 1985 1990 expected to double over the next decade, as Telephone capacity 269,000 381,000-500,000 1,100,000 will the number of international trunk lines. Telephone subscribers 160,000 345,000 900,000 Telex capacity 6.000 15,000 na Sophisticated subscriber equipment, including Telex subscribers 2,400 5,500 7,500 autodialing, and electronic PABX’s, are pop- A major goal is to rehabilitate the telephone ular among businesses. Over the next decade, system. Major repair expenses are being in- Kuwait is planning to spend $1.5 billion on ex- curred for telephone cables; $1.38 billion has pansion of special telecommunications net- been allocated to replace damaged under- works at ports and transportation centers and ground telephone cables with waterproof ones. along highways. Kuwait has imposed large fines on contractors In the transmission field, demand for satel- who damage these cables during construction, lite technology has been generated by the data but the fines have not resulted in an elimina- transmission requirements of banks and finan- tion of this problem. cial institutions. Additional microwave link- Actual construction expenditures for tele- ages and uses for fiber optics will probably be communications grew as follows: identified over the next 10 years. Since there are no plans to develop a domestic telecom- 1978 $ 72.2 million munications equipment manufacturing indus- 1979 80.6 million 1980 79.1 million try, Kuwait will continue to be dependent on 1981 105.7 million imports into the foreseeable future. 1982 152.4 million In 1981, there were 347 telecommunications During 1982-83, allocations by the PTT fell 54 employees per 10,000 lines in Kuwait. This slightly from $212.9 million in 1981-82 to compares with an estimated 140 employees $201.6 million.” The Ministry of Communica- usually required to operate and maintain tions is the major consumer of telecommunica- digital equipment. It is also significantly tions equipment. Other major government higher than the employee-to-line ratio in Saudi purchasers are the Ministries of Defense and Arabia and Iran. Public Health. Sales are by tender and are always carried out through a local agent. Based on data reported by the ITU (1980), Kuwait annual expenditures for maintenance 52 Kuwait Ministry of Communications, “Present and Future and repair have been erratic. Through 1973, Telecommunications in Kuwait,” March 1981. ‘rI’h[’ I“;conc)nlist Intelligence [Jnit, Qum-ter)j’ F,’conomi(’ R(L ~i(’}{, I,ondon. Nlarch 1982. 54 AT&T Long Lines, op. cit., 1982

35– 507 0 - 84 - 1 ~ : QL 3 216 ● Technology Transter to the Middle East the costs were low–$3,000 to $6,000 per 1,000 take over the role of operator, maintainer, main lines per year. The costs in 1974 and 1975 trainer, and consultant for the Kuwaiti PTT.55 were very high in comparison-$75,000 per The Kuwait Telecommunication Training 1,000 main lines. Expenditures since then de- Institute was established in 1966 to train na- clined, but rose slightly again recently. tionals in maintenance, operation and super- These costs may be related to two factors. vision of telecommunications systems. First, the use of many types of equipment and Courses cover a broad range of subjects, in- many suppliers during initial implementation cluding English, switching and transmission of the telecommunications network is making technologies, broadcasting and training meth- it difficult to maintain sufficient inventories ods. In response to rapid expansion of telecom- of spare parts and obtain replacements. Sec- munications services in Kuwait and limited ond, there have been problems in equipment numbers of Kuwaitis interested in the train- maintenance. Overall, while there appears to ing, enrollment was recently expanded to a be high demand for a variety of telecommuni- small number of non-Kuwaitis.56 cations services, the capacity of local Kuwaitis In the construction field, Kuwaiti firms are to operate and maintain the network efficient- apparently becoming large and capable, win- ly has been limited. ning many civil works contracts. Except for With a high rate of population growth and Kuwaiti trading companies that procure tele- a large expatriate population, Kuwait’s de- communications equipment from foreign sup- mand on international trunk lines is likely to pliers for the government, local firms are often be high. Due to the large population shifts and not capable of fully absorbing the advanced changing needs of subscribers, it has been dif- technology installed. ficult to predict and match demand and exchange capacity. The waiting list for telephone Egypt subscribers has been large, fluctuating be- As its telecommunications facility is mod- tween one and five percent of the total popu- ernized and as Beirut has been the site of pro- lation. longed civil war, Cairo is likely to emerge as Kuwait faces manpower shortages that lim- a major regional commercial center. Already, it technology absorption in the short term. In it is serving as a cultural center in the Arab the 1975 census, there were a total of 298,415 world, exporting television and radio pro- people classified as economically active. Of grams from its large broadcast studios. these, only 29 percent were Kuwaiti nationals. Radio and microwave transmission facilities This situation has created a strong dependence have improved communications for Egyptian on foreign contractors. oil companies between headquarters, oil wells, For example, a Japanese consortium of Nip- and refineries. Improved and more reliable pon Telegraph and Telephone and Kokusai transmission will probably create a new com- Denshin Denwa (KDD) planned, designed, and puter and data-processing industry, produc- installed the telephone system between 1965 ing a demand for indigenous computer pro- and 1975. Three years after the system was grammers. The increased investment in the turned over to Kuwait, the Japanese were telecommunications network may help slow asked back to renovate, maintain, and oper- the outflow of technically trained and experi- ate the system, which had reportedly deterio- enced workers from Egypt to elsewhere in the rated. The new Japanese consortium, Japan Arab world. Telecommunications Engineering and Con- sulting (JTEC), that accepted the job rejected “’’Japan Telecommunications Engineering and Consulting a contract renewal offer. Citing payment with- (JTEC)– Kuwait Reluctant Partner, ” Middle East Economic Digest, Oct. 15, 1982, p, 90. holdings and difficult working conditions, “Telecommunications Training Institute, Prospectus– Tele- JTEC allowed another foreign contractor to communications Training Institute, TTI, Safat, Kuwait, 1983. Ch. 6—Telecommunications Technology Transfers . 217 —. —— .— ——— — —.— —.

Satellite links also have enabled more relia- of convenience rather than technological plan- ble and timely communications between the ning may have resulted in the purchase of a Foreign Ministry and Egyptian embassies large variety of equipment types that must abroad. Moreover, Egypt has been a major now be made compatible. purchaser of military communications equip- The standard for electrical current in Egypt ment from France and other suppliers. The is 220 volts, which benefits European suppli- British, for instance, have a joint venture in ers over American firms. There is no formal Egypt to manufacture military radio products. statement concerning telecommunications The 1978 master plan for telecommunica- standards; ARENTO and its contractors have tions developed by Continental Telephone In- developed them as the need arose.” ternational has apparently been adopted as The estimated cost for the 4.5 million new Egypt’s official 20-year plan. That plan and telephone lines by the year 2000 is $17.4 bil- the initial budget figures for the 1980-84 de- lion. Feasibility of the telecommunications velopment plan in the transport and commu- plan largely rests on the availability of financ- nications sector allocated $2.4 billion to pro- 57 ing from suppliers, donor countries, and inter- ject investments over a 5-year period. national organizations. Even if the projected The basic goals are to: 1) increase the num- 700,000 new telephone lines are successfully ber of telephone lines from 700,000 to 1.6 mil- completed by 1985, there will still be an esti- lion by 1985, 3.0 million by 1990, and 4.5 mil- mated shortfall of 400,000 lines. This pent-up lion by 2000; 2) attain a telephone line density demand helps explain the likely focus of re- of 3.7 per 100 inhabitants by 1985; 3) install quirements over the next 10 years. Telephone 12,000 new telex lines by 1985 and 26,000 by and telex equipment will be the largest sector 1990; 4) install new and replacement coaxial for expansion, mostly in switching and sub- cable linkages between major cities, submarine scriber equipment. While most of the current cable between Egypt and Saudi Arabia, and exchanges are of the crossbar type, fully elec- microwave linkages between Upper and Lower tronic digital equipment is expected to be used Egypt and to the Sinai; and 5) establish new increasingly. broadcasting stations and towers and reno- There is a shortage of telex capacity in Cairo vate or replace existing equipment. as a result of increases in the number of busi- Eighty percent of all contracts in this field nesses opening offices there. ARENTO is plan- are with the public sector—ARENTO (Arab ning to spend $17.2 million to install addition- Republic of Egypt National Telecommunica- al telex exchanges, telex traffic is expected to tions Organization), ministries, or 11 other quadruple by the year 2000, placing further public-sector organizations. In the public sec- strain on capacity. tor, agents are required to represent foreign The transmission network is in great need firms, financing is essential, and political clout of renovation and replacement. The major is reportedly useful. market will be in coaxial cable and carrier The private sector, in comparison, has great- trunks. Enhancements to microwave systems er access to funds and can buy directly from and high-frequency radio are secondary mar- suppliers. In fact, one source indicates that the kets. In addition, as digital transmission takes key factor in making a successful sale to the over there will be a developing market for government is the availability of favorable fi- Time Division Multiplex (TDM) equipment. nancing; the technology chosen is a direct re- ARENTO is forced to employ more person- sult of the best financial package.58 Decisions — nel than needed in order to help alleviate the 57 Charles Richards, ‘Egypt Embarks on Crash Moderniza- country’s high unemployment. This has led to tion Program, .Jliddle Ijas[ Economic Digest, oct, 15, 19R2, underemployment, problems in supervision, ~, H’7, ‘mU. S. I)epartrnent of Commerce. (’communications l+;quipmrn[ _ in the .~irat) Hepuhlic of I.’~’pt, Lfrashington. D.C., 1980. 59 Ibid. 218 ● Technology Transfer to the Middle East —-.——- .— .—.— and a resulting poor quality of workmanship Egyptian fitters and technicians are report- and service. edly capable. But at the same time, these skilled laborers go abroad, depriving Egypt of Annual expenditures for maintenance and experienced technicians. As a result, there is repair of the telephone service slowly escalated a lack of experienced skilled workers to oper- from a 1970 level of $62,651 per 1,000 main ate and maintain the telecommunications net- lines to $81,580 per 1,000 main lines in 1976 work. Much of the existing network is main- (in constant 1979 dollars). This gradual re- tained by foreign contractors. sponse to an apparently rapid deterioration of the network was a major contributor to poor Under USAID funding, Continental Tele- service. In 1977, major increases to the main- phone and Arthur D. Little are providing ex- tenance and repair budget–reaching $146,961 tensive training in craft skills such as tele- per 1,000 main lines--signalled the beginning phone installation and cable splicing. They are of of the “quick fix” approach to restoring also attempting to transfer broader technical quality service.60 knowledge to the more advanced employees. Training sessions are held at ARENTO’s Tele- The major domestic source of telecommuni- communication Training and Research Insti- cations equipment is the Telephone Appara- tute in Cairo. The training, which is provided tus Company, which is government-owned. in both English and Arabic, includes formal Previously a joint venture with Ericsson and classroom as well as on-the-job learning ex- now under license to that company, this facil- perience. ity produces 35,000 lines of crossbar exchanges, 7,000 lines of PABX systems, and Thomson-CSF is commissioned to train 35,000 phone sets per year. Annual sales in Egyptian technical staff to take over opera- 1978-79 were $12.9 million. The factory ap- tion of the enhanced network within a 3-year pears to be well managed. It produces many period. Apart from this training, the Ministry of the technical components and is not merely of Interior has established a separate institute a subassembly operation. However, because of telecommunications training. This ministry it is a state-owned factory, pay is on a low, is responsible for fire, police, security, emer- government scale, and good technical staff are gency services, and traffic functions-and thus reportedly lost to private enterprise. Egypt has very special communications needs. Train- also has a radio and TV production plant. The ing at all levels—from technician upward and labor force at this facility totals 200 and is from telex machine repair to microwave cir- trained in manufacturing, management, qual- cuitry design-is conducted. ity assurance, and design. Although skilled manpower shortages rep- Among Middle Eastern countries, Egypt resent one major constraint to absorption, it has a comparatively large population and a may be possible to overcome this problem in fairly high percentage of its population aged the short term by retaining in-country skilled 20-24 enrolled in higher education-15 percent technicians who are emerging from the univer- in 1978. In 1978-79, there were 11,117 grad- sities and training programs. The most diffi- uates and 72,306 students enrolled in engineer- cult constraint to absorption, however, is the ing, science, technology, and electronic cur- availability of sufficient capital to pursue the ricula in Egyptian universities. These numbers planned development of the telecommunica- increased rapidly during the 1970’s, which tions network. suggests that a growing base of technically qualified manpower will be emerging shortly. Algeria One problem will be to keep them employed The planned expansion of the telephone and within Egypt. telex networks has enabled Algerian national planners to begin to address the needs of other 60 ITU, op. cit., 1980. industries. The growth of LNG production, Ch. 6— Telecommunications Technology Transfers ● 219 .— liquefaction plants, and export markets will excommunications Ministry (PTT) is require increased domestic coordination and responsible for about 75 percent of purchases international linkages through telecommuni- for the public networks; the Radio and Televi- cations. Planners are also encouraging small- sion Agency procures radio and video equip- to-medium private enterprise and decentraliz- ment; Sonatite, a state company, obtains ing industry from Algiers and the coastal equipment for private end-users (PABX’s and plain; both efforts will entail better telecom- phone sets); and mobile radio equipment is munications facilities. purchased by each ministry and national company individually. Standards for Algerian The expansion of the telecommunications equipment are based on French, and therefore, network is likely to integrate the rural areas ITU norms. with the political and social mainstream of the nation. At the same time, the urban popula- The Algerians are committed to convention- tion explosion and planned increase in hous- al technologies— analog transmission and ing construction will put greater demands on crossbar switching produced locally. Thus, Al- the capacity of the telecommunications geria’s approach is quite different from that network. taken by Saudi Arabia and Kuwait, and more similiar to that of Egypt. Price is usually the The 1980-84 Algerian development plan almost important criterion in awarding a tele- locates $2.5 billion, or 2.5 percent of total communications contract. In fact, most min- allocations, to telecommunications. Overall, istries and network companies are mandated one-quarter of the funds are devoted to com- by law to grant contracts only to the lowest plete projects currently under way, and the re- bidder. Technical competence of the contrac- mainder to new projects. The breakdown of 61 tor and the reliability of equipment, as dem- projected investment is (in millions of U.S. $): onstrated by installations elsewhere, are also Switching $ 757.7 important decision factors. Since the Algeri- Transmission 453.0 ans have also been trying to rid themselves Buildings 363.2 of an overdependence on French imports, non- Network plant 342.3 Improving quality of service 68.9 French suppliers have been in a good position. Support equipment 48.0 The largest expansion will probably be in Other services 54.3 Radio and TV 400.0 switching and transmission, especially in light Total $2,487.4 of plans to increase line density in urban areas and expansion to rural areas. Firms from Swe- As occurred with previous development den, Spain, and France are likely to be predom- plans, it has been impossible to spend the al- inant in the switching and subscriber equip- located plan funds within the expected time ment areas. Japan is likely to become frame, owing to manpower shortages, con- dominant in the transmission area, since it struction delays, and insufficient installation supplied cable and microwave networks and capability. is a front runner in supply of additional Earth Very little, if any, telecommunications stations. equipment or services are purchased by pri- A substantial amount of telecommunica- vate industry in Algeria. National ministries tions equipment is currently being produced and state-owned companies do all the tender- locally. While these plants may have been de- ing, selection, and procurement, even for pri- signed to produce the equipment from start vate concerns. The Posts, Telegraphs, and Tel- — .— to finish, most are assembling components ‘>’ N1 ichael Frost, “Algeria: ‘1’elecommunicat ions k;xpansion still imported from Spain or the United States. U rider W’ay, Jliddle hlast l

Exacerbating this manpower problem, the Iraq modern analog telecommunications technolo- Iraq’s telecommunications network has gy being installed in Algeria is more labor- brought with it efforts to expand the techni- intensive than digital technology. Given a con- cally trained work force, but in the short term servative rule of thumb of 150 inside and out- increased dependence on foreign technical sup- side plant personnel per 10,000 analog lines, port has resulted, Moreover, in purchasing ad- Algeria will require a minimum of 15,000 tel- vanced computer-based technology, Iraq may ephone employees operating and maintaining limit maintenance problems now, but expand a l-million-line network by 1990. Judging from foreign dependence later, if sophisticated manpower requirements for telecommunica- training is not pursued. Iraq’s motivation to tions systems elsewhere, approximately 9 per- expand its telecommunications networks is cent of the employees will need college degrees also, in part, to serve its requirements for im- in engineering and management. Eighteen per- proved military preparedness. At present, cent will have to be technical school graduates with oil revenues reduced and the war with in electronics to serve as technicians in switch- Iran continuing, projects in the telecommuni- ing centers. Sixty-six percent will need some cations field are putting an increased strain electrical repair training to serve as outside on Iraq’s balance of trade. plant installers and repairers. The remaining 7 percent will have to be literate to serve as Iraq planned 525 new projects to develop operators and clerks. the telecommunications infrastructure in the current 5-year plan. Among the goals were:63 Of the six countries in this study, Algeria has the lowest percentage of the relevant age 1. Increase telephone capacity to 1 million group enrolled in higher education (4 percent) phone lines by 1985 and to 1.8 million by or in secondary school (31 percent). These sta- 1990. tistics, plus the large proportion of the eco- 2. Increase phone density to between 7 and nomically active population working abroad 10 phones per 100 inhabitants by 1985. in France, suggest that Algeria may face the 3. Increase the number of telex subscribers constraint of insufficient skilled manpower to to 6,000 by 1985 and to 10,000-18,000 by fully absorb the telecommunications technol- 1990. ogy it is purchasing. As a result, Algeria will There is an absence of information on spe- probably have to depend significantly on for- cific objectives in the telecommunications area eign technical help beyond 1990. and no cost breakdowns of planned develop- If current trends and plans for development ment in Iraq’s 5-year plan. As a standard for and export of liquid natural gas materialize, comparison, the previous 5-year plan allocated the necessary capital for telecommunications $1 billion to telecommunications programs. It efforts should be available. However, there is was estimated that almost one-half of these insufficient high-level management and tech- funds were used to establish military commu- nical personnel to operate the telecommunica- nications networks. tions factories and the growing network. Major government contracts are usually put Training efforts for technician-level telecom- out to tender for international competition. munications personnel must compete with re- Sales in telecommunications equipment and quirements of other industrial establishments for available manpower. These training efforts are, however, critical to more effective utili- ‘i] Intel-Trade, Mar. 30, 1979: ITU, op. cit., 1978, MEED Con- zation of telecommunications technologies. sultants, op. ci~., p, 7. 222 . Technology Transfer to the Middle East services are often made to ministries directly Although figures on Iraq’s manpower situ- or to state trading organizations. Local rep- ation are not available, large numbers of for- resentation for foreign firms is often useful in eign workers have built factories and infra- enhancing sales. structure and operated and maintained Iraq’s telecommunications system.64 In part, Iraq Over the long term, Iraq intends to expand sees purchase of advanced technology as one its telecommunications network in both rural way of offsetting its deficiency of skilled man- and urban areas, using the latest digital trans- power. Most contracts for equipment stipulate mission systems. An east-west microwave system has been contemplated to support inter- that operation and maintenance of that equipment by foreign contractors must include national trade of food and agricultural products. training that supports indigenous absorption Other areas likely eventually to see increased goals. demand are PABX systems, mobile radio telephone networks and data communications net- Iraq’s plans for expansion of the telecom- works, for state organizations. munications system have been delayed by the West European firms from France, Great war with Iran. By far the largest share ($6.4 Britain, and Sweden already dominate in billion of $7.2 billion) of contracts awarded in many sectors. Japanese companies tend to be 1983 were in the defense sector. Although predominant in switching and wireless net- authoritative information is not available, it appears that Iraq’s telecommunication expan- works. It is likely that they will continue their major presence in the Iraqi telecommunica- sion has been concentrated primarily in the military sector in recent months. tions market. The Eastern bloc-Hungary and the Soviet Union—have made only minor in- Iran roads in this market. U.S. firms, likewise, have had a very limited presence. Expansion of television broadcasting (reaching more than 65 percent of the population) International usage has been high and this and other mass communication vehicles has has strained the capacity of the network. In- been a major instrument of political mobiliza- ternational communications traffic had grown tion in Iran, used to discredit the Shah and at 30 percent annually. This was probably a 65 then to legitimize the new regime. Telecom- consequence of the growth in business and ex- munications have also been used by the Is- ports as well as the large number of foreign lamic regime to build support. The regime’s workers in Iraq. priorities suggest that future investments in There are several factories devoted to elec- telecommunications will be focused primarily tronics and telecommunications equipment. A on consolidating military positions and ensur- semiprivate company has the capacity to pro- ing readiness. duce 50,000 telephone sets annually. A public- Early in 1982, a 20-year development plan sector factory producing telephone wire was was approved and in September 1982 a new 5- scheduled to be commissioned in the early year plan was implemented in Iran. In these 1980’s. A contract was signed in mid-1981 documents, the regime stated its wish to avoid with Thomson-CSF (France) to establish an the degree of dependence on foreign suppliers electronics manufacturing facility, and consid- that the country experienced under the Shah. eration was being given to developing indige- The principal objective of the current plan is nous production of TV and radio receivers. economic self-sufficiency. Staple items and However, given startup times for new facilities and current capacity limited to component as- ..--——— — sembly, dependence on foreign telecommunica- “Jonathan Crusoe, “Iraq’s Spending Slowdown Disappoints Contractors, ” Middle East Economic Digest, Feb. 19, 1982, p. tions equipment imports is expected to con- 1 (). tinue at a high level. 65Tehranian, op. cit., 1982. Ch. 6—Telecomrnunications Technology Transfers c 223 —.. .—. strategic and intermediate goods must be pro- Reported shortages of telecommunications duced domestically. equipment and spare parts in Iran since the revolution have encouraged expansion of local The PTT Ministry has selected sectors that production and importation of materials from will receive enhanced telecommunications net- friendly countries. Although some require- works. In order of priority they are: 1) security and defense forces, 2) ‘‘voice and vision ments are being satisfied by domestic sources of supply, the domestic cable manufacturing broadcasting,” 3) government institutions, 4) facility reportedly has had difficulties meeting productive and agricultural sectors, 5) villages, 68 66 demand. Given Iran’s desire for greater self- 6) trade and commerce, and 7) households. In addition, goals have been established to de- sufficiency, it is likely that it will attempt to velop telecommunications facilities for all vil- increase indigenous production of telecommunications equipment and will probably draw lages of 1,000 persons or more by 1987 and upon West German, Italian, and Japanese ex- all smaller villages by 1997. Some expansion pertise to expand its capability. and repair work is apparently proceeding. Ap- proximately 43,000 new telephone lines are Iran’s population is growing at an average planned for installation in Teheran, Gilan annual net rate of 2.3 percent. Extrapolating province, and Rasht. to 1990, Iran’s population maybe 48.7 million. If previous trends continue, population growth Reportedly, $8.3 million has been spent in urban areas will increase at a rate of over through June 1982 on reconstruction and ren- 4 percent annually. These factors will serve to ovation of telecommunications facilities and put more stress on the capacity of the existing microwave equipment. The telecommunica- system. As an indicator of this push on de- tions budget for 1982-83 was set at $27.2 mil- mand, waiting list statistics for telephone lines lion. Moreover, an amendment to the 1982-83 have increased exponentially between 1971 budget included $112 million for completion and 1979—from 133,559 persons (0.5 percent of several projects. In comparison, planned investments in telecommunications under the of the 1971 population) to 750,000 persons (2.1 percent of the 1979 population).” Shah amounted to $380 million (1978-83), $546 million ( 1983-88), and $913 million (1988-93). Iran made strides in addressing the problem Given the sketchy information available on of shortages of skilled labor in the 1970’s. Sta- current plans and budgets, it is difficult to tistics demonstrate that between 1969 and assess the likelihood that the goals will be vig- 1974, the number of engineering students re- orously pursued. ceiving higher education in Iran more than Based on 1981 figures, Iran had a fairly low doubled. In addition, the contract with Amer- ican Bell International, Inc., focused in part ratio of telecommunications employees (255) on developing full self-sufficiency in telecom- per 10,000 lines. This suggests a rather effi- 70 67 munications training by 1985. Iranian trainees cient operation. who went through the Bell training program Prior to the overthrow of the Shah, two do- exhibited a clear ability to master hardware mestic manufacturing plants were producing operation because the training was practical, telecommunications equipment, primarily tel- technical, and hands-on. Maintenance and ad- ephone sets. One factory was a joint venture ministrative training were more difficult for with Siemens, and the other was under a licen- trainees to grasp. Several Iranians who fin- sing agreement from another German firm. It ished the courses successfully became instruc- is unknown whether these plants are still in tors for their colleagues. operation. Iran thus developed a limited level of self-sufficiency in equipment production. —-— ——— ———— 66 Akhbar { Iranian newspaper-English translation), Sept. 27. “lTA, op. cit., 1982. 1982; Oct. 9, 1982. “ITU, op. cit., 1980. ‘qAT&T Imng Lines, op. cit., 1982. ‘[’Telecommunications, August 1979. 224 ● Technology Transfer to the Middle East ———.—.—— -— —. ——.—

On the negative side, some of the Bell train- National Security.– Iraq and Iran have ex- ing courses experienced a dropout rate of close pressed special interest in application of tele- to 50 percent. Moreover, many of the manage- communications technology to improve mili- ment skills viewed as essential to efficient tary readiness. Moreover, each of the six operations were found to be too Western- countries has made large investments in bound and culturally alien. These topics in- sophisticated military communications sys- cluded team approaches to problem solving, tems over the past 10 years. Undoubtedly, communications skills, and recordkeeping these acquisitions and the training of nationals skills. in the military services to operate and maintain the equipment have contributed to im- Like Iraq, Iran’s telecommunications expan- provements in civilian capabilities to absorb sion depends on the course of the war. In 1983, the technology. however, Iran reportedly awarded $20 million in contracts in this sector, in comparison to National Objectives to Build Infrastructure. $1.5 million reported for Iraq.71 –Each of these countries has taken the oppor- tunity, afforded by the rapid increase in oil rev- Several common themes have emerged in enues during the 1970’s, to rebuild a decay- the analysis of these six nations that serve to ing infrastructure or to develop a base. They enhance or constrain indigenous capabilities realize that without modern transportation to absorb telecommunications technology. and communication networks, electric power These are described below. grids and other basic utilities, and a network of health, education, and social services they Factors that Facilitate Absorption will not be able to build and develop the pro- National Objectives to Reduce Dependence ductive sectors of their economies. In this conon Foreign Suppliers.–-Almost all of the coun- text, telecommunications systems have been tries in this study maintain as a formal nation- seen as essential parts of the national infra- al goal reducing dependence on foreign sup- structure. Countries such as Saudi Arabia pliers. Algeria, Saudi Arabia and Iran have set have seriously supported these commitments, conscious goals to increase self-sufficiency in backed them with sufficient funds, and industrial production and in telecommunica- avoided bureaucratic constraints. tions in particular. These objectives have been Indigenous Production.—Domestic produc- generally implemented through major train- tion of telecommunications equipment reduces ing programs. This was true with the Ameri- foreign imports required. While production in can Bell training contract in Iran before the each of these countries is limited and often revolution and the Bell Canada training con- consists of only component assembly plants, tract in Saudi Arabia. it provides a stable base of training in techni- In some cases–Saudi Arabia, Kuwait, and cal skills. Domestic manufacturing has taken Iraq, in particular-these goals are critical for various forms. Local firms have in some in- reducing the presence of large foreign work stances operated under license to a major sup- forces in-country. Saudi Arabia has estab- plier, participated in joint venture with a lished goals to enable rapid transfer of tech- Western firm, or been involved in technical nical operations to the indigenous labor force. cooperation with a foreign corporation. In This has involved major investments in train- some cases, Algeria and Egypt for instance, ing of administrative and management meth- domestic plants have the capacity to manu- ods and technical skills. Saudi Arabia has em- facture the components. phasized programs to improve productivity At the same time, because these Middle among trained nationals as a way of reducing Eastern countries invest very little in techni- the resident foreign work force. ——- —— ..— cal research and development, they are often 71 MEED Consultants, op. cit., 1984. constrained by the technology they originally Ch. 6—Telecommunications Technology Transfers . 225 select for manufacture. Hence, most domes- plified and focused. Algeria, for example, has tic production in the Middle East involves chosen to stay with conventional electrome- electromechanical analog switching and rotary chanical equipment because it is a known telephone instruments. Ironically, private in- quantity, has been proven to be effective, and dustry and business that can afford more so- is easier to master for trainees with limited phisticated equipment may import electronic electrical background. digital PABX's and push button phones from foreign suppliers, bypassing domestic produ- Synergy With Other Industries.–Absorp- tion of technology is fostered by a continuing cers entirely, as occurred in Egypt. demand for improved services from a growing Decision To Stay With Conventional Tech- user community. The growth of domestic and nology.—Another factor that enhances the ca- export industries in these countries, and an increase in housing construction, have synergis- pacity to absorb technology is continuity in programs, needed to ensure compatibility of tic effects on the growth of telecommunica- technology. If a country has made a clear deci- tions networks and on the indigenous capacity sion to adopt established technology as the to operate and maintain them. standard nationwide and does not sway from that decision by importing experimental Factors That Constrain Absorption equipment, absorption will be enhanced. By Manpower Shortages.—Saudi Arabia and using one type of technology, training is sim- Kuwait presently have work forces that lack

Photo credit Saudi Arabian Ministry of /nformation

Taif Earth station 226 ● Technology Transfer to the Middle East — ... —.—. ———-—— —— .— —— the technical and management skills necessary over, the high dropout rates and problems in to operate and maintain effective telecommu- recruitment indicate that motivation among nications networks. Algeria, Egypt, and Iran, trainees in these countries is often low. on the other hand, produce technicians but Several cultural factors also constrain ab- they are attracted by higher salaries to work sorption. In Saudi Arabia, for instance, cul- in the Gulf States. This drain of skilled labor tural aversion to manual labor has limited constrains absorptive capacity. maintenance training of nationals and focused Skilled technicians and engineers who re- attention on operations. In Iran, Bell trainers main in their native country are in such short found that while apprentices were able to gain supply that the telecommunications industry technical mastery of telecommunications must compete with other industries for their equipment rapidly, administrative, manage- talents. Since the telecommunications net- ment, and maintenance methods were, for works in these countries are owned by the gov- them, abstract and foreign. ernment, workers are often paid on a govern- Capital Availability.—Each of these coun- ment scale, and job offers from private tries, except for Egypt, has been able to in- industry are likely to be more attractive. More vest significant amounts of national revenues in development or renovation of telecommunications infrastructures. Only Egypt has been constrained by lack of available investment funds and has relied extensively on economic assistance for funding. If a country can afford to pay for the importation and installation of telecommunications equipment and can afford to have foreign labor operate and maintain that technology, it may choose to continue that dependent rela- tionship while investing its limited local manpower in other sectors of the economy. Population Growth.–Another factor that constrains telecommunications capacity is the rapid growth of population in these Middle Eastern countries, especially in urban areas. This growth continually strains capacity, resulting in difficulties in maintaining a high quality of service. Inconsistent or Changing Public Policy. –Consistency in public policy is important in achieving high levels of technology absorption, especially when the government is the owner of the technology and the major source of development funds. Some countries such as Al- geria and Kuwait have reduced telecommunications and technical training budgets despite stated national objectives, as revenues declined or as political priorities changed. As a Saudi technician Inspects computerized telephone consequence, efforts to develop a skilled man- network Saudi Arabia was the first country I n the world to install a nationwide stored program power base to operate and maintain the tech- control telephone system nology have been disrupted or delayed. Ch 6— Telecommunications Technology Transfers . 227 ——

In Egypt, public-sector organizations have exports, and in providing technical assistance been mobilized to assist in solving the chronic to foster friendly relations with recipients. unemployment problem. In response, the More than 2,300 U.S. and foreign companies state-operated telecommunications authority 74 manufacture telecommunications equipment. employs almost ten times the number of work- The number increases further if one adds sup- ers required to operate and maintain the equip- pliers of telecommunications support serv- ment. This has resulted in underemployment ices—consulting, training, technical operations for some, the placement of unqualified work- management, and maintenance. Competition ers in other functions, overall supervision among these suppliers is intense, considering problems, and a poor quality of service. In this that there are only about 100 major custom- case, one national goal—to improve the tele- ers for public networks worldwide-i. e., the na- communications infrastructure-has been bal- tional PTTs. anced against other policy goals of reducing unemployment. This section focuses on the competitive position of U.S. and other supplier firms in this market-what the U.S. share of the market PERSPECTIVES OF SUPPLIER has been, how U.S. firms rank within the six COUNTRIES AND FIRMS national markets covered in this study, and The world telecommunications market is how they fare within each technology sector. growing rapidly. According to some experts, Finally, critical factors that have influenced sales of telecommunications equipment world- competitive success in the Middle Eastern wide may double during the decade of the telecommunications market are identified. 1980’s to $366 billion during the period.72 Total sales amounted to $188.2 billion during United States the period 1970 to 1980. Sales in 1983 alone Observers disagree about why U.S. firms were about $59 billion. A significant portion have not been more successful in sales of tele- of these sales will surely be in the Middle East. communications equipment and technical A plan adopted by the ITU to overhaul the services in the Middle East. On the one hand, public systems of 28 Middle Eastern and Med- businessmen see the efforts of the U.S. Gov- iterranean basin countries called for $30 bil- ernment as insufficient and not on par with lion (1978 dollars) in investments.73 those of other governments, particularly with Major supplier firms have several objectives regard to export financing packages. On the in common in pursuing telecommunications other hand, many observers agree that U.S. transfers to the Middle East: 1) marketing in sales in the Egyptian market stem directly countries with a recognized need, technologi- from AID loans supporting telecommunica- cal requirements, and ample budget; 2) find- tions system expansion (see app. A, Egyptian ing new markets once their own domestic mar- project profile) .75 Some also feel that, until kets have been saturated; and 3) building a recently, U.S. firms were not anxious to tai- solid reputation that can open foreign markets lor technology to foreign markets since the do- for other telecommunications goods and serv- mestic U.S. telecommunications market is so ices. Major supplier countries also have inter- large. ests in recycling petrodollars to equalize trade The American Businessmen’s Group in Ri- balances, opening markets for other types of yadh has taken the position that the U.S. Gov- ernment has not provided the means to help U.S. firms bear the large financing demands

— “.A’I’&T }\nnual ReporL, 1981. “ lnterti(~ws with represcntat i~es of US suppliers. hlarch 1983. 228 ● Technology Transfer to the Middle East involved in doing business in the Middle East. nications equipment and services, as do other Small and medium-sized companies find it dif- supplier governments,76 government-sup- ficult to arrange adequate financing, and com- ported programs such as AID’s in Egypt have panies, large and small, cannot offer complete been important mechanisms for sales. (As dis- financing packages as comprehensive as that cussed in ch. 11, there has been considerable offered by the Siemens consortium in Egypt. debate among AID officials and U.S. policy- Through the Export-Import Bank, the U.S. makers concerning the appropriateness of Government makes loans to foreign purchas- these programs.) ers of U.S. goods. However, corporations want The United States Telecommunications the bank to do more by providing such things Training Institute (USTTI) was established in as bank letters of guarantee, guarantees for 1982 with U.S. Government support. The pur- tender and performance, and advance pay- pose is for private U.S. firms to share ad- ment bonds. The Overseas Private Investment vances in telecommunications technology with Corporation (OPIC) provides political risk in- developing countries. The establishment of the surance and guarantees to U.S. firms invest- USTTI also reflected the recognition that ing directly in less-developed countries, but most equipment and service supplying coun- the countries in which OPIC operates are lim- tries use training as a vehicle for entering mar- ited by maximum gross national product kets in developing countries. (GNP) requirements. Training is performed in the United States The U.S. Government has, however, several by the corporate sponsors on their own equip- established programs in the Middle East that ment. Nearly 20 U.S. corporations have con- particularly assist U.S. suppliers of telecom- tributed over $2.5 million to the program in munications equipment. In Saudi Arabia, the its first year including both capital and in-kind U.S. Army Corps of Engineers is a consultant donations of technical personnel and equip- to the Ministries of Defense and Aviation in ment. In addition, the World Bank, the ITU, the design and contracting of military con- and other multilateral organizations have pro- struction work. The Corps writes specifica- vided scholarships to help pay transportation tions, preapproves bidders, and evaluates pro- and living expenses of the trainees. posals for the Saudis. In its construction jobs, there is usually a telecommunications compo- In the past year, 14 percent of the trainees nent. The Corps plays a nonpartisan role in bid were from the Middle and Far East, with five evaluations, and non-U.S. firms may be cho- from Saudi Arabia, one from Kuwait and one sen as subcontractors. from Egypt. Some have suggested that the USTTI should collaborate with firms in send- USAID has contributed $242 million in ing personnel abroad to conduct training in de- loans and grants to Egypt since 1977, all tied veloping countries. This would be an impor- to purchases from American telecommunica- tant learning experience not only for the tions suppliers. AT&T, Ford Aerospace, Sim- foreign trainees, but also for the U.S. firms plex, Continental Telephone, and Arthur D. who seek entry into foreign markets. Others Little have been the principal recipients. AID- suggest that the training offered by the orga- funded contracts have included microwave nization should stress lower level technical equipment, traffic control equipment, TV skill development to a greater extent. broadcasting systems, navigation control networks, telephone cables, switching systems, The major U.S. telecommunications firms and radar surveillance and remote-sensing with dealings in the Middle East have been equipment. AT&T International, Continental Page, Inc., and General Telephone and Electronics (GTE). Thus, while U.S. Government personnel do not normally seek out export opportunities or “Interviews with representatives of U.S. suppliers; Novem- carry on negotiations for sales of telecommu- ber and December 1982. Ch. 6—Telecommunications Technology Transfers ● 229

France Great Britain Over the past decade, France has developed The British government in 1980 supported policies to promote the development of the na- a high percentage (39 percent) of exports with tion’s telecommunications industry. The gov- official financing.79 British firms have, how- ernment also encourages firms to target half ever, lost ground as worldwide exporters of of the equipment they produce for export mar- telecommunications equipment, and the gov- kets. It has also assisted manufacturers in ernment has not developed a strongly targeted standardizing equipment to facilitate integra- policy similar to that of France.80 Direct gov- tion and export to other countries. ernment support (including financing) for this industry thus appears to have been less exten- France is eager to maintain a strong export sive than in France or Japan. position in the Middle East to cover its imports of Middle Eastern oil, particularly oil In part, British telecommunications exports from Saudi Arabia. In early 1982, France may have suffered, because British manufac- signed a liquefied natural gas (LNG) agree- turers have over-engineered and over-designed ment with Algeria that included an accord to equipment to meet the standards of the gov- supply $2 billion worth of French goods and ernment-operated domestic phone system.81 services, including telecommunications, to As a result, their products have been uncom- Algeria. French banks have also extended petitive, overpriced, and unsuitable for foreign credits for export of telecommunications markets. goods and services to Egypt. In an attempt to turn this situation around, In addition to export credits, the French British Telecom, the government-owned phone government provides support to telecommu- authority, is cooperating with local industry nications exports through the DGT (Direction to develop and market System X, a family of Generale des Telecommunications), the tele- digital, microelectronic, and stored program communications branch of the French PTT. control telephone exchanges. This system is DGT plays a diplomatic and consultative role, intended to boost sales overseas and improve maintaining contacts with foreign telecommu- the reputation of British telecommunications nications administrations and international technology. In addition, British embassy per- bodies such as the ITU. DGT also provides in- sonnel in Saudi Arabia are reported to be ef- formation and consulting services.” fective in maintaining influential contacts with the Saudi PTT and arranging marketing meet- The major French telecommunications firms 82 ings for British firms. doing business in the Middle East have been Thomson-CSF and CIT-Alcatel.78 Major British telecommunications firms involved in Middle Eastern markets are Cable and Wireless, Standard Telephone and Cable, Ltd., and Plessey Telecommunications and Of- .—— - -——— fice Systems, Ltd. ““.lfiddle East Economic Digest, Special Report on Saudi Arabia, ,July 1981; 7’elecommunica.tions, March 1980. “’Some restructuring of the French telecommunications in- West Germany dustry is now occurring in order to increase exports and keep France competitive internationally. Thomson-Brandt will West Germany has provided export credits transform its telecommunications interests. currently held by to several countries in the Middle East. The its subsidiary Thomson-C SF, into a new holding company called Thomson Telecommunications, under CGE's (Compagnie Gen- eral d‘Electricite) management. By 1987, CGE plans to merge “Robin Day Glenn, Financing of United St;]tes k’xport~ of its subsidiary, CIT-Alcatel, with Thomson Telecommunications, 7Teie~-onln]uni(’ations Equipment, The International Law Insti- thus effecti~el~ hecoming France monopoly telecommunica- tute. Georgetown [Jni~ersit~ I.a~’ Center hlonograph, \$’ash- tions producer. (,\T. }’. ‘1’ime.s, Sept. 21, 1983: Financial Times, ington, DC., 1982, p. 2;3. Sept. 16, 19WI. See also “Telecom (;iants to ,Join Forces. ” ftfid- ‘i’) Ihid., p. 11, dle f’,’a.~t h;conomic I)igest –.Special Report on France, :\pril ‘17’elephonJ, Sept. lo, 1982. 19H4! pp. 4-5. ‘Jl’inancia] Times, ,Jan, 6. 1981. 230 ● Technology Transfer to the Middle East ——

Siemens-led consortium was probably companies can call on Teleinvest to assist in awarded the $1.8 billion Egyptian telephone financing and exporting products. expansion contract because of the financial In 1978, faced with trade deficits largely package in which the West German govern- caused by rising oil imports, Sweden initiated ment participated through export credits and an export drive aimed at Middle Eastern coun- soft loans. Export credits have also been 83 tries. Banks increased their support to com- granted for exports to Iraq. panies exporting to the Middle East, and the Domestically, the German government pro- government organized trade missions for 100 vides funding to local manufacturers for re- Swedish companies. The Philips/Ericsson proj- search and development (R&D). In 1979, for ect in Saudi Arabia was reportedly won partly instance, the government committed approx- because two Swedish banks were approved as imately 3 percent of its total R&D budget to guarantors by the Saudi Arabian Monetary defray costs incurred by the electronics indus- Agency.85 try.84 Siemens is the major West German firm involved in Middle Eastern telecommuni- Canada cations. Bell Canada is one of the world’s oldest telecommunications organizations, having started Sweden as a telephone company in 1883. It has since Sweden has a well-organized government become Canada’s principal supplier of telecom- system for promoting sales overseas, although munications services, employing 57,000. In private companies compete with the govern- 1983, Bell Canada Enterprises was established ment for business. Televerket (TVT) is a state= as the parent company of a family of firms owned public utility that provides telecommu- that includes Bell Canada as the operating tel- nications services (telegraph, telex, telephone, ephone company, Northern Telecom as a man- data communications, radio communications) ufacturing subsidiary, Bell-Northern Research domestically and overseas. TVT has several as a telecommunications research and devel- manufacturing facilities, a consulting organi- opment organization and Bell Canada Inter- zation (Swedetel) that works primarily in de- national (BCI). veloping countries, and a subsidiary (Swed- BCI was formed in 1976 in response to com) that installs, operates, and maintains strong overseas demand for consultancy serv- telecommunications equipment in foreign ices. It has performed telecommunications countries. Another subsidiary, Teleinvest, acts projects of all sizes throughout the world in- as an export agent to assist in financing and cluding the five-year Saudi management con- export of telecommunications equipment man- tract awarded in 1978, which at that time was ufactured in Sweden. In addition, the govern- the largest ($860 million) communications con- ment provides some credit assistance for large tract of its kind in history. Under this con- projects in developing countries through tract, Bell Canada would organize, operate, Svensk Export Kredit. and maintain the expanding telephone system Swedish government entities sometimes col- and train Saudis to take over the operation laborate with private companies in selling themselves. This contract was superseded in products overseas. TVT and Ericsson are 1983 by a $1,297 million 3-year contract to equal owners of a company called Ellemtel, provide the Kingdom with operations and which was set up to design and develop tele- maintenance service for its telecommunica- communications equipment. Ellemtel devel- tions expansion program. Bell Canada has car- oped the AXE exchange, for example. Private ried out other work in Saudi Arabia including ——.— —— one contract for ARAMCO which has involved “John Y$’helan, “West Germans Win on IIigh-Tech, ” ,i!lid- dh+ East Economic Digest, Jan. 29, 1982, pp. 10-11. 84 Telecommunications, October 1980. 85 Telecomn]unications, February 1982. Ch. 6—Telecommunications Technology Transfers ● 231 — —. - provision of advice on management methods facture its own equipment, it helps Japanese and setting up a private communications net- manufacturers by advancing them part of the work. They reportedly won these contracts be- purchase price. This reduces costs and often cause of their proven operating track record enables them to underbid the competition. and extensive training experience. The Japanese government has offered cred- The next biggest Middle Eastern market for its to some countries (Algeria for one) to pur- BCI is Iraq, which has become the largest cus- chase Japanese telecommunications equip- tomer for the supply, installation, and main- ment. In addition, the government sponsors tenance of Northern Telecom equipment. BCI high-technology research. NTT supports basic first entered Iraq in 1976 when it installed an research in telecommunications—very large- advanced Northern Telecom exchange on a scale integration (VLSI), optical fibers, and turnkey basis—Iraq now has 60 of these ex- digital networks–and participating firms gain changes. 86 access to research results. Japan has entered the Middle East telecom- Netherlands munications market only in the past 10 years. The Dutch have escalated their efforts to ob- Many Japanese companies have become very tain a larger share of the telecommunications competitive. In the early 1970’s, exports market in the Middle East. Their major com- represented only about 8 percent of Japan’s pany is N.V. Philips. Prior to 1978, Dutch ex- telecommunications sales; in recent years they ports of telecommunications equipment to the have made up nearly 20 percent. region were low. However, between 1979 and Major Japanese firms active in Middle East- 1980 the Dutch government took several steps ern telecommunications markets are Nippon that improved their firms’ competitive pos- Electric Company (NEC), Fujitsu, Ltd., and itions. Hitachi. Ltd. The Netherlands had encouraged cash out- flows to stabilize the Dutch guilder. As a re- U.S. Competitive Position sult, Dutch banks expanded their foreign in- There has been volatility in the patterns of terests and have been in a better position to telecommunications exports of the major sup- assist companies with financing. Dutch gov- plier nations. The increasing popularity of dig- ernment aid to developing countries, which ital technology and the aggressiveness with represents about one percent of gross national which some suppliers have promoted product product, also plays a role in influencing sales development have had important effects. Too, to the Middle East. As part of the Philips/ aggressiveness in designing effective market- Ericsson telephone contract in Saudi Arabia, ing strategies and enlisting government sup- the Dutch government provided a guarantee port for these efforts have also been evident. for financing. Market shares of major suppliers in 1980 and net changes in worldwide market shares over Japan 87 the past decade are presented below. Telecommunications operations in Japan Share Point have been handled under Nippon Telephone Market Share Difference and Telegraph (NTT), a public corporation 1971 1980 1971-80 which is being reorganized. However, Kokusai Japan 13.6 21.4 + 7,8 Denshin Denwa (KDD) and private companies United States 18.7 15.6 3.1 are important suppliers internationally. Al- West Germany 14.7 12.6 2.1 Netherlands 7.4 7.2 --0.2 though NTT has not been allowed to manu- —. — — United 86 "Bell Maintalns Momentum in Saudi Arabia,” Middle East Kingdom 11.1 7.0 -4.1 f,’~onorl]i(” I)l,ges[ .’$pw>ia] lteport on (’:in:~d:l, hl a~ I 9hl, p. I 1, France 5.4 6.5 +l.1 sf~f’ al w) 11 1~ 11{’(1 rnon(l. ‘‘ I)}rnanli[< [)f T[’(’tlnfJlf}~j ‘1’rahsf~r” Sweden 7.2 5.6 - 1.6 ( ‘anii~ia \f ork It) S:iudi Irtil)ia. ‘ Td(’ph(m}’, ,)fu~. 24, ] !)h ] , pp. 30-32. 232 Technology Transfer to the Middle East . —. —. ———

Major shifts in market shares over the past The only other national market in which U.S. 10 years consist of: firms have had firm control is Saudi Arabia. This situation is likely to continue. U.S. firms ● A major increase in Japan’s share, exceed- have also won large numbers of Arabsat con- ing those of the United States and West tracts. Germany. ● A decline in U.S. and West German The positions of U.S. firms can be clarified shares. further by analyzing market dominance at the ● A major decline in Britain’s shares. technology sector level within each country. ● A slight improvement in France’s The sectors in the Middle East in which U.S. position. firms were strong competitors between 1974 and 1982 are shown in table 61. Even small changes in share points are substantial when translated into dollars, since the In Algeria, U.S. firms had strong positions size of the world market itself grew extensive- in two relatively small technology sectors— ly over this period. satellite and multiplex. In Egypt, the U.S. firms dominated or were strongly competitive Japanese firms have benefited in the world in a variety of small sectors. The picture in market from the structure of Japan domes- Iran is very different; prior to the revolution, tic telecommunications market, the deprecia- U.S. firms monopolized all of the key technol- tion of the yen, and a major industrial shift ogy sectors except for video and radio broad- to high technology industries. The French casting. In Iraq, the United States had virtu- have marketed their advanced technology ag- ally no presence, and penetration of the gressively and have made major inroads in the Kuwaiti market was minimal. Saudi Arabia is sale of military equipment worldwide. On the the one national market in which U.S. firms other hand, the West Germans and British were predominant or strong competitors in all were late in developing digital telecommunica- of the major technology sectors. U.S. firms tions equipment to meet world demand. also dominated in the regional Arabsat Focusing more specifically on the six Mid- project. dle Eastern countries in this study, the follow- It is difficult to discern any pattern in these ing suppliers have been dominant in the na- data to suggest that U.S. suppliers are espe- tional markets for telecommunications cially competitive in certain telecommunica- equipment and services. based on contract ac- tions technology sectors, except that U.S. tivities between 1974 and 1982: firms have been dominant in satellite systems, Algeria 1. Spain both in satellite components and Earth sta- 2. Sweden tions. The ability to win contracts in Middle 3. Japan Eastern markets is determined by many fac- Egypt 1. France tors, some of which are discussed below. 2. Germany 3. Austria Iran 1. United States (until 1979) U.S. Supplier Advantages Iraq 1. Japan 2. Sweden Overall, U.S. suppliers have had a high tech- 3. France nical reputation. U.S. technology has been Kuwait 1. Sweden viewed as being high in quality and depend- Saudi Arabia 1. United States able and reliable. Moreover, the reputation of 2. Sweden U.S. telecommunications technicians and engi- 3. Netherlands neers is attested to by contracts from many 4. France national PTT ministries to provide consulting U.S. firms were predominant in Iran prior services to support planning, operations, and to 1979, but their work then came to a halt. maintenance functions. After-sales service by Ch. 6—Telecommunicatlons Technology Transfers “ 233 — . .—

Table 61. —U.S. Competitive Position in Telecommunications Markets in the Middle East Between 1974 and 1982

Sector- Total size (millions) market Dominant. position Strong competitor Algeria Satellite — $ 11 2 $ 6669 Multiplex 1.8 Egypt Cable 230.4 2,8000 Microwave 72.5 Television 677 Consulting 351 HF Radio 9.2 Iran (1974-79) Switching 1,900,0 2,8000 Cable 689.9 Telex 180 Satellite 6.0 Iraq ., None None 2,000.0 Kuwait ...... — Television 70 4310 Saudi Arabia ...... Switching 6,400.0 12.9000 Microwave 1,000.0 Radio 3964 Mobile 257.5 SatelIite 685 Other telephone 19.2 CCTV 18.9 Data Communication 18.6 Multiplex 4.2 Regional Satellite — 234.0 2943 SOURCE Office of Technology Assessment

U.S. firms was also highly regarded and In addition to civilian communications viewed as dependable. U.S. manufacturers equipment, many U.S. suppliers are major were also considered major suppliers of ad- manufacturers and exporters of high-technol- vanced technologies in emerging fields, such ogy military communications products. Mili- as data communications and office automation tary communications networks are a major systems. In the six nations covered by this technological component in command and con- study, however, these high-technology areas trol, military preparedness, and national secu- were less important in trade than telephone rity, and thus are central to the modernization and telex sectors. of a nation’s armed forces. U.S. military equipment sales have served to facilitate the sale Since most new telecommunications tech- of both military and civilian communications nologies involve the use of microchips, the equipment. competitive position of the United States, As discussed earlier, U.S. government pro- which is still one of the top suppliers of these grams in Egypt and Saudi Arabia promote valued components worldwide, has been telecommunications technology transfers to boosted. In fact, several foreign manufacturers of telecommunications equipment (e.g., Thom- those countries. son-CSF) were dependent on the United States for these components. Until recently, U.S. tele- U.S. Supplier Disadvantages phone companies outside the Bell system Probably the most important difficulty ex- bought their small electronic switchboards perienced by U.S. suppliers of telecommunica- from GTE, ITT, or Stromberg-Carlson Corp- tions equipment and services has been in es- oration. More recently, however, 75 percent of tablishing competitive prices and in arranging such sales have been made by the Japanese comprehensive financing packages. Not heav- firms Oki Electric Industry Co., NEC, Hitachi, ily subsidized domestically or for export, the and Fujitsu. This suggests that one factor con- industry must reduce its costs internally tributing to U.S. market shares in the past is through higher productivity and lower over- now less important. head to come up with the best pricing bid. 234 Technology Transfer to the Middle East — .

U.S. suppliers have at times been at a dis- firms operating overseas have been moder- advantage in competing against firms in Ja- ated. Tax laws were changed in 1981 to relieve pan and Western Europe, where governments U.S. citizens working abroad of paying taxes provide complete and attractive financial on the first $75,000 earned. (Workers from Ja- packages. Although U.S. Government agen- pan, West Germany, Great Britain, Italy, cies such as the Export-Import Bank and France, and Sweden do not pay taxes on sala- OPIC support U.S. exporters, they apparently ries, bonuses, health insurance, or retirement have not had the flexibility of some foreign benefits earned overseas.) In 1982, revisions governments in providing long-term soft were made to the Sherman Anti-Trust Act, re- loans, extensive export credits, and bartering laxing restrictions on companies involved in arrangements. For example, a West European foreign trade. The Export Trading Act of 1982 consortium won the $1.8 billion contract for and the Bank Export Services Act established modernizing Egypt’s telephone network, re- an office in the Department of Commerce to portedly primarily because of the attractive promote export trade associations and invest- financing offered with the assistance of their ment in export trading companies.88 governments. This project is described in ap- U.S. firms have also complained about other pendix A. laws which have not been changed, such as the Most U.S. suppliers, catering primarily to antiboycott program and the Foreign Corrupt the domestic market, design their equipment Practices Act (FCPA) of 1977. The FCPA, to North American standards, which are mod- they say, makes little distinction between ifications of CCITT norms. Except for Saudi bribes and commission agent fees or foreign Arabia, the six Middle Eastern countries in sales representatives’ bonuses. In many Mid- this study, as well as most European nations, dle Eastern countries, they claim, these costs abide by straight CCITT norms. Some have are the accepted mode of doing business.89 viewed this as a problem for U.S. suppliers, Some businessmen also claim that in Algeria, but Japanese manufacturers also produce where the agent system does not operate, cor- equipment for their domestic market using ruption is minimal. However, OTA research modified CCITT norms. did not uncover any cases where the FCPA was a major factor in lost sales. The Arab Until recently, U.S. firms did not actively boycott of Israel influenced the nature of con- market digital electronic switching technology tract awards, as mentioned earlier, by Arab- abroad. In comparison to the product lines of sat. U.S. firms were, however, able to par- digital switching leaders, such as CIT-Alcatel ticipate. and Ericsson, U.S. modern analog offerings were not as sophisticated or new. Moreover, In general, the following factors, ranked U.S. prices were high for this older technol- roughly, have been critical in marketing ogy. On the other hand, some U.S. manufac- telecommunications technology effectively in turers (GTE for instance) have been bidding the Middle East. on digital equipment contracts. In fact, some 1. Low price. Despite their large revenue suppliers offer greater flexibility to custom- base, many of the oil-producing countries are ers because they do not restrict themselves to increasingly cost-conscious. Price has often sale of their own equipment. (In certain cases, been the most important decision criterion. this last point may constitute an advantage.) In addition to complaints about weak U.S. — —— .— “Public Law 97-290, 1982. government representation of business men- “’Charles Wohlstetter, chairman of Continental Telecom, Inc., tioned earlier, Government regulations and says his company could not win a contract to install a phone taxation were said to impede the flexibility system for Saudi Arabia because ‘‘we were unable to pay a bribe. ” U.S. law, he says has kept “American companies from and competitiveness of U.S. suppliers. Recent- providing big systems in the Middle East,” Business Week, ly, however, many of the obstacles for U.S. Oct. 24, 1983. Ch. 6— Telecornrnunications Technology Transfers c 235 ——-—

(See, for example, the Saudi Arabian telephone to link an Egyptian telephone project to a expansion project profile, appendix A.) In fact, threat of withdrawing certain military aircraft selection of the low bidder is sometimes man- sales, was not successful. dated by law. Depreciation of certain national 6. Early program involvement. Participation currencies over the past few years and the abil- by a foreign contractor in a program’s early ity of companies to profit from domestic sub- stages—a pre-engineering or master plan sidies have tended to make particular suppli- phase—is often helpful in gaining the customers more attractive. go er’s confidence and in establishing an organi- 2. Complete financial package. Ability to zation in-country to handle the follow-on tasks. supply a complete financial package with at- This was true in the case of AT&T in Iran and, tractive terms to the buyer is often a key de- in part (since the Siemens consortium won the termining factor in a contract award. large contract), with Continental Telephone in Egypt. Being the first to introduce a new tech- 3. Reputation. Technical competence, prod- nology in a country—microwave networks, uct reliability, and the ability to point to oper- digital electronic switching, Earth stations, or ating installations using the supplier’s equip- mobile radio networks, for instance-has also ment are key selling factors. assisted companies in gaining control of those 4. After-sale support. A supplier’s willing- markets. ness to train local personnel, provide spare 7. Local operations. In each of the six coun- parts, and operate and maintain the equip- tries except Algeria, it is necessary to oper- ment it installs is a critical decision factor. ate through a local agent. As discussed in ap- This type of commitment is often exhibited pendix A, the Ericsson/Philips/Bell Canada through establishment of a local office or joint consortium was said to have been aided in its venture. successful bid by use of Prince Fahd’s son as 5. Associated business deals. By offering ex- an agent. In most countries, joint ventures tra “carrots,” suppliers can develop unique with local interests are given preference in con- packages that are attractive to the buyer. For tract award evaluations. Such joint ventures, instance, in addition to the telephone modern- however, may involve potentially costly risks, ization work in Egypt, the Siemens consorti- since suppliers have less control over their in- um promised to conduct efforts to improve vestments. railway signaling and rolling stock, perform 8. Political neutrality. Political neutrality in a feasibility study on Egyptian coal resources, Middle Eastern issues has apparently en- and establish a joint-venture consulting orga- hanced Japan’s opportunities to export to a nization. Moreover, Thomson and Ericsson ap- wide range of ideologically diverse Middle parently tie civilian communications sales to Eastern countries. In other cases, such as Sau- military equipment transfers. On the other di Arabia and Egypt, political alliances have hand, the reported attempt by U.S. suppliers served to promote U.S. telecommunications —— exports. ‘ \+ stated h~ ,Jf~hn 1, k!oore in R, 1). (;lenn (op. cit., 19821, “’1’h[~ currem’?r r(~]ation~hips m-e such that one could almost rule 9. Corporate financial soundness. In order L).S. ct~nlpanie+ (Jut of cornpe~ition on price, without regard to for a supplier to profit in conducting business project finance except in projects where the U.S. still has an in the Middle East, it must be able to with- edge on technology or mass production due to the scale of our economy, or efficiency and certainty of meeting delivery stand payment delays, as well as a host of schedules. ‘ ‘ other investment risks. 236 ● Technology Transfer to the Middle East — . . ———

IMPLICATIONS FOR U.S. POLICY

Specific U.S. laws and policies, such as the familiarizes Middle Easterners with U.S. Foreign Corrupt Practices Act, taxing of U.S. equipment. As one example, the U.S. Tel- workers abroad, and antiboycott legislation, ecommunications Training Institute in- although having an influence, have not been volves a number of U.S. firms working in major determinants of U.S. competitiveness a joint effort supported by the U.S. gov- in Middle Eastern telecommunications mar- ernment. kets. Although together they do represent ob- 2. Promoting mutually advantageous devel- stacles to U.S. suppliers, the major factors opment assistance/contingent contract sometimes negatively affecting U.S. presence awards. This could be accomplished by and market share have been price and financ- explicitly linking assistance and export ing arrangements of foreign competitors. programs (through use of mixed credits)91 Technical reputation, reliability of spare parts or by expanding technical assistance pro- supply and after-sales service, and favorable grams in telecommunications involving diplomatic ties follow as secondary deter- private U.S. firms as well as government minants. agencies. (As discussed in chapter 13, many fear that assistance goals could be U.S. foreign policies have set the context for distorted by explicit linkage.) trade. The United States has had great suc- 3. Promoting regional cooperation in tele- cess in countries with favorable ties, such as communications. This approach would Saudi Arabia, prerevolutionary Iran, and, in- only improve the positions of U.S. firms creasingly, Egypt. U.S. supplier presence in if their participation was central to coop- Iraq and Algeria has been minimal, and it is erative technical efforts, such as in a nonexistent in present-day Iran. telecommunications technology transfer The United States is an acknowledged lead- center. er in state-of-the-art telecommunications tech- 4. Upgrade the technical expertise of For- nologies, such as satellite systems, but these eign Commercial Officers ‘and AID staff have often represented smaller dollar-volumes to deal more effectively with telecommu- of sales in the Middle East. The more conven- nications-related projects. tional technologies and the increasingly dominant digital systems are strong technologies OTA's research indicates that the compar- ative position of U.S. firms in Middle Eastern for non-U.S. suppliers, technologies that are markets stems only in part from U.S. Govern- often tailored by them to export markets and ment policies. With the assistance of the U.S. can be promoted effectively against a strong Government, financing, commercial represent- dollar, particularly with advantageous fi- ation and cooperative programs involving nancing. private-sector firms could be improved; but Some options could be considered which the marketing and technology transfer efforts could assist U.S. firms in winning sales of telecommunications equipment and services which help promote the Middle Eastern na- 91 tions’ development plans. They include: In July 1984, the U.S. Export-Import Bank announced that it would provide 90 percent financing and 8 percent interest 1. Establishing more foreign manpower to support the U.S. firm Scientific Atlanta in its bid to sell a satellite communications network to Algeria. This step was training programs in the telecommunica- taken in an effort to counter Japan’s use of mixed credits. See tions field, which increases expertise and Washington Post, July 11, 1984, p. D1. Ch. 6—Telecommunications Technology Transfers ● 237 ———- — — ——-— ——— of the firms themselves are key determinants Egypt and Saudi Arabia have certainly been of success in contract competition. Indeed, promoted by U.S. Government policies. telecommunication technology transfers to

CONCLUSIONS Despite overuse of the term, there has in- tions, there is great disparity in the availabil- deed been a world telecommunications revo- ity of telecommunications facilities, the relia- lution in the last decade. With telecommunica- bility and efficiency of operations, and usage tions deregulation in the United States and from country to country. Systems range from pressures to deregulate in other countries, the efficient, heavily used, but possibly soon- changes in the next decade may be even great- to-be-overtaxed systems of Saudi Arabia and er. What was previously a necessary but not Kuwait; to the Egyptian system, where less very dynamic sector, generally run by a gov- than one local call in three is completed; to ernmental PTT, telecommunications has been Iran, which recently had an average of only transformed with computers, microchips, and 13 domestic calls per subscriber per year over satellites into a sophisticated, rapidly chang- the 3.4 lines per 100 inhabitants. The local ing sector. Even firms in industrial countries need is there; pent-up demand exists across all have been pressed to keep up with recent de- telecommunications sectors and represents ex- velopments in automatic exchanges, fiber op- cellent future markets for foreign suppliers: tics, data transmission, digital systems, and potential also exists for developing indigenous satellite technology. capabilities in equipment manufacture, installation, operation, and maintenance. Technological advances in telecommunications come rapidly–systems can become ob- In telecommunications, several critical fac- solete before they are installed. Distinctions tors tend to facilitate technology absorption between communication, information transfer, by Middle Eastern countries: they include a and processed data are no longer clear, owing national resolve to build adequate infrastruc- to improved communication links, increased ture, demand for telecommunications technol- computer ties, and transborder data flows. ogy from other sectors of the economy, strong In the Middle East, the gradual shift from national security objectives, the existence of conventional analog to digital electronic equip- domestic telecommunications production fa- ment will become even more apparent, as will cilities, and decisions to stay with more con- a shift from large public network development ventional technology. Factors constraining ab- to sophisticated systems and services for pri- sorptive capacity in telecommunications vate end-users. Service industries involved in include skilled manpower shortages, rapid repair, maintenance, and supply of the tele- population growth (producing burgeoning de- communications infrastructure can be ex- mand), and inconsistent or changing public pected to develop in the private sector within policies regarding telecommunications devel- the recipient countries. Computer and data- opment. processing industries are also likely to emerge. Banks and financial institutions have already U.S. firms have done relatively well in advanced telecommunications sectors in the been among the first to push for sophisticated Middle East–but these, up to now at least, telecommunications services, office automa- represent small dollar amounts in total teIe- tion, and data-communications features. communications expenditures in the region. Despite the stated desires of the Middle U.S. suppliers have exported many types of Eastern nations and the well-conceived plans telecommunications technologies to Saudi for domestic as well as regional communica- Arabia and pre-revolutionary Iran, but over- 238 ● Technology Transfer to the Middle East —- —

all, the U.S. firms have not been a dominant U.S. policy options for improving the posi- force in telecommunications trade in the re- tions of U.S. firms and for furthering devel- gion. This has been due to many factors, in- opment goals of the Middle Eastern nations cluding political relations between the U.S. include improving the technical capabilities of and nations in the region, a strong U.S. dollar U.S. commercial representatives in the region, in recent years, and difficulties in arranging allowing more flexibility to government agen- financing as compared to the financing offered cies in arranging financial assistance to ex- by other suppliers. In addition, until recently, porters, promoting regional cooperation in the large, “captive” U.S. domestic telecom- telecommunications, and increasing coopera- munications market was the prime concern of tive technology transfer efforts involving the U.S. equipment suppliers. private sector.

APPENDIX 6A.–TELECOMMUNICATIONS PROJECT PROFILES IN SELECTED MIDDLE EASTERN COUNTRIES SAUDI ARABIAN PROJECT proposed by each supplier. Another factor in the bidding that probably influenced the award deci- DESCRIPTIONS sion was that Philips had hired Prince Fahd’s son Telephone Expansion Programl as its agent in Saudi Arabia. In terms of financial arrangements, the Dutch firm arranged for guar- The Saudi Arabian Telephone Expansion Pro- antees from three banks and received a direct gram, an ambitious program to expand the tele- Dutch government guarantee. The Swedish firm phone network in Saudi Arabia from 200,000 lines was able to amass a $277.4 million guarantee to 1.2 million in a 5-year period, began in January through Citibank (U. S.) and 11 other Swedish 1978. A consortium of Ericsson (Sweden), Philips banks. (Netherlands) and Bell Canada head the project The evaluation team consisted of members of team. There were three serious bidders considered the Saudi PTT, Norconsult (Norway), Arthur D. by Saudi Arabia for this job–the Ericsson/Phil- Little (U.S.), and the International Telecommuni- ips/Bell team, ITT (U.S.), and Western Electric In- cation Union. ternational (U.S.). Separate cost estimates were re- The total contract has grown from $2.2 billion quested from each bidder for the three segments in 1978 to over $5.0 billion, The project’s scope in- of the contract—urban systems, rural systems, cludes installing the world’s first national stored and operations and maintenance, Overall, the win- program control (SPC) telephone system. Over ning contractors offered the lowest bid, as can be 795,000 new lines were to be installed and 197,000 seen below: existing lines on crossbar exchanges were to be Bids (in billions of U.S. $) converted to computer control, In addition, a na- Urban Rural Ops & Maint. Total tional automatic mobile telephone system was to ITT $1.25 $0.20 $2.00 $3.5 Western Electric 1.47 0.23 1.20 2.9 be installed. Philips/Ericsson/Bell 1,49 0.25 0.47 2.2 Philips and Ericsson agreed to split the work While ITT projected the lowest costs for the ur- and revenues equally. Essentially, each firm sup- ban and rural systems, it estimated the highest plied the following equipment: costs by far for the operations and maintenance Ericsson Philips segment of the job. Western Electric’s estimates Large-capacity local Small and medium exchanges exchanges Container exchanges in this regard were also almost triple that of the Rural container exchanges PCM multiplex equipment non-U. S. consortium. The high cost estimate for All-tandem trunk and Trunk cables and most local this work segment may have been instrumental in international exchanges cables the final selection, since it portends future opera- Equipment to upgrade Building designs tions and maintenance costs for the equipment existing crossbar Subscriber rural radio exchanges .— ——— All telephone instruments, 1 R. Raggett, “Desert Project Blossoms, ” Telephon.y, July 28, 1980; coin boxes, and mobile Intel-Trade April 15, 1979; World Business Weekly, June 9, 1980; Mid- telephones die East Economic Digest, July 1981, Feb. 19, 1982, Oct. 9, 1981, March Some local cable 13, 1981, May 23, 1980, Aug. 17, 1979, Feb. 17, 1978. All network equipment Ch. 6—Telecornrnunications Technology Transfers ● 239 -— — —

Bell Canada’s role involved a 5-year operations, lish and Arabic for discussion with the PTT, con- maintenance, and training function. Given its $1 sultants, and subcontractors. billion segment of the job, Bell Canada was to Other obstacles also emerged as the project pro- establish and control Saudi Telephone under the gressed. Local and municipal government officials auspices of the Saudi PTT. Its other functions in- had to give their consent to where the trenches cluded installing and maintaining subscriber lines, were dug and where buildings could be located. indicating new network installation priorities, Only Muslim staff were allowed into the holy cit- assisting in the test and acceptance procedures, ies of Mecca and Medina. Subscriber hookups were training, subscriber billing, developing phone often delayed because Muslim custom prevented directories, and building construction. telephone technicians from entering homes when The consortium drew on 200 subcontractors to a male member of the household was not present. supply equipment and services. Principal among Moreover, the two consultants, A.D. Little and them was Dong Ah Company (South Korea), Norconsult, modified priorities over the course of whose functions were to construct, install, and pro- the contract, given new developments in technol- vide initial maintenance for the outside plant and ogy. Their recommendations resulted in the use of buildings, Norconsult and A. D. Little provided fiber optic technology in Riyadh. At the same consulting services. time, the project team had a goal of keeping the The contract was based on a pre-engineering systems within the operational capabilities of study conducted by A. D. Little in 1974-75. Its re- Saudi personnel, despite the advanced technology port recommended that the Saudis update existing that was employed. crossbar exchanges with digital equipment, ex- Training occurs in Europe, Canada, and on-site. pand the phone network, and increase the number While few trainees have any technical background, of main phone stations by 476,000 digital lines. they undergo an intensive program that covers the After the initial contract was signed, Philips and outside plant and the inside plant (operations, sys- Ericsson formed a Saudi joint venture to manage tem maintenance, and technician levels). Trainees the supply and installation of equipment and coor- get 2-3 months of field experience between course dination of other subcontractors. One of the first segments. There has been some difficulty in find- tasks was to provide living quarters for the em- ing sufficient numbers of trainees; highly qualified ployees. Three fixed-location villages were con- engineers are often attracted to private companies. structed beginning in 1978 near Riyadh, Jeddah, There has also been a high dropout rate. and Dammam for 1,500 employees and their fam- So far, the system has experienced minimal ilies at a cost of $48 million. Compounds for 230 downtime and is highly responsive in providing unmarried employees were also developed in Ri- customer services. There is also a high usage rate yadh and Jeddah. In addition, mobile camps for among new subscribers, helped along by low phone installation engineers in remote areas were estab- rental charges and low rates for calls. lished. Although the Dutch and Swedish employee population was the largest, 43 other nation- Intra-Kingdom Microwave Program’ alities were represented, including many British. Dong Ah brought in more than 6,000 Koreans and Western Electric International Inc. (now a part Indonesians. The crew was characterized by a very of AT&T International) was awarded this $408 low absentee rate and high contract renewal rate. million project in June 1977 by the Saudi PTT, To meet the very tight schedules, a massive based on a tender released in September 1976. The logistics effort had to be planned and executed to job entailed the engineering, furnishing, installa- transport equipment to the required sites. Over tion, operation, and maintenance functions for 12 200,000 cubic meters of supplies were shipped months, and the training of local personnel for a from Europe by air and sea and then stored in Jed- 6,200-mile, 46-route, 300-site microwave communications project, The system was built to provide dah and Dammam until distributed by truck. To 35,000 long-distance telephone circuits, as well as avoid on-site delays, exchanges were pre-assem- telex, television, and data transmission channels. bled in Europe before shipping. A minicomputer In addition, a 405-phone emergency roadside sys- was also shipped to the consortium’s on-site head- ——- quarters to help plan, project, inventory, and con- ‘K. Jackson, "Linking up with the Future, ” Telephonj, Aug. 27, 1979; Saudi Arabia Yearbook 1980-81: Middle East Econom”c Digest, August trol the complex production schedule. Detailed 1978, Jan. ’23, 1981, (let, 5, 1979, January 1981, Aug. 27, 1982; Elec- monthly progress reports were generated in Eng- tronics ,\Tews, Sept. 6, 1982; Intel-Trade Apr 15, 1979. 240 ● Technology Transfer to the Middle East

tern was designed and installed, as well as 10 main- Project requirements and environmental condi- tenance centers and two surveillance centers to tions necessitated modification of some equipment detect faults in the system. The system was inte- design. The radio relay and multiplex equipment grated into the national long-distance network. at each site had to operate unattended for 4 This project was actually begun by the Italian months at a stretch, with high reliability and min- firm, SIRTI, which provided microwave links be- imal maintenance. There was also a need to design tween Jeddah, Taif, Riyadh and Dammam. Nor- and produce transportable, stand-alone, and self- consult of Norway, Swedetel of Sweden, and powered buildings with an air-handling system Preece, Cardew, and Rider of Great Britain were that provided air conditioning and dust filtration. consultants to the Saudi PTT on this project for Bell Laboratories was commissioned to modify the SIRTI and Western Electric phases. Western Electric multiplex designs developed for Western Electric, as prime contractor, was re- the U.S. market so that they would meet interna- sponsible for overall orchestration of the project. tional standards. A building was developed to shel- It supplied the multiplex equipment, Rockwell-Col- ter site equipment to withstand desert and moun- lins Systems International, Inc., of Dallas, was a tainous conditions, salty sea air, high and low major subcontractor (with a contract worth more temperatures, and possible earthquake tremors. than $100 million), supplying the radio relay equip- Bell Labs, along with Payne, designed a light- ment and supervising field testing. Anixter Com- weight, strong, and insulated shelter that doubled munications Systems constructed over 687 shel- as a shipping container for the equipment. These ter modules; Charles Payne and Company helped units were developed in a modular fashion to allow design and engineer the shelter building; Shafat them to be fit together in different patterns to GmbH supplied the AC generators and Harmer meet the particular specifications of each site. The & Simmons Ltd. provided the DC generators. modular design was also efficient for preassembly, Other subcontractors were used to supply towers, with power generators being shipped directly to antennas, and in-country construction and support Saudi Arabia from their European suppliers. services. Western Electric provided training on the micro- The project team faced several difficult prob- wave network in system management and techni- lems from the outset: cal operation. This was conducted at the same time ● Tight schedule: The first eight routes were the system was being designed and installed. Al- promised to be cut into the national system though Western Electric maintained the system within 16 months, with the rest of the system for the first 12 months after completion, Sartelco, completed in phases by 30 months (December a joint Saudi-Italian venture, won the subsequent 1979). Some estimates suggest that given the $75 million maintenance contract. It will use 120 extensiveness of the work, it would normally Italian and 180 other technicians on its staff, sev- take at least twice as long to complete a proj- eral presumably being Saudi nationals. ect this size. The Saudi PTT in August 1982 awarded AT&T ● Equipment protection: Techniques had to be International a $377.5 million contract to expand developed to protect the sensitive equipment the microwave network and supply 150 new tow- against a harsh environment. ers. This will double the existing telephone capac- ● Transportation and installation: Problems ity to 70,000 voice frequency channels and expand arose in transporting the equipment and in- and strengthen the network’s radio and TV stalling it in a country with limited facilities channels. and limited trained technical help. In order to meet the tight schedule, Western EGYPTIAN PROJECT Electric immediately commenced production of the DESCRIPTIONS multiplex equipment. Living quarters and offices 3 were constructed immediately in several locations. Telecommunications Modernization Sites for the microwave stations were inspected. The modernization of telecommunications in An assembly and equipment testing facility was Egypt was awarded to a European consortium established in Atlanta. To avoid on-site problems, consisting of Siemens (West Germany), Thomson- it was decided to assemble the system components CSF (France), and Siemens Austria in September in a modular fashion in the United States and im- 1979. No formal request for tenders was ever plement needed changes in the United States be- ——— — fore shipment. In line with this decision, the equip- 3 .Middle East Economic Digest, April 1979, Sept,. 21, 1979, January ment was preinstalled in shelters. 1981, Oct. 15, 1982, Oct. 24, 1980; Frith, Kirk, and Spinks, 1980, Ch. 6— Telecommunications Technology Transfers ● 241 issued. However, following the completion of the years, until October 1982. This delay resulted from 20-year master plan by Continental Telephone In- details in the agreement that still needed to be ternational (U. S.) in 1978, several firms made finalized. Siemens agreed to a memorandum of presentations to the Egyptian PTT describing how understanding concerning the prices for equip- they would implement it. ment (which could be no more than 15 percent Major competitors included an American con- higher than U.S. equipment provided under the sortium consisting of Continental Telephone In- AID package) and the use of local contractors for ternational, AT&T, and GTE. Ericsson, ITT, and civil works (laying cable and installing ducts). Philips were also serious contenders. The most im- Thomson agreed to a similar memorandum on portant factor in the Egyptian award decision was prices, engineers’ salaries, and training of Egyp- financing. Egypt was looking for 75 percent of tian technical personnel. The contract and mem- total financing from the supplier countries and the oranda then had to be ratified by the Egyptian remainder from financial institutions. The Euro- parliament. pean consortium was the only bidder that could The scope of this 5-year project includes: 1) in- provide this type of package. Soft 15-year loans stallation of 500,000 new phone lines and renova- with 5 percent interest and a 5-year grace period tion of 350,000 existing lines, losing 100,000 ex- were offered by the three supplier countries in the isting antiquated lines in the process; 2) supply of consortium. Moreover, supplies and export credits analog switching systems; 3) provision of coaxial were made available by France and West cables in Lower Egypt and microwave systems for Germany. Upper and Lower Egypt linked to Cairo; 4) estab- The winning team used other marketing strate- lishment of repair centers; 5) provision of 3 years’ gies as well in its successful bid. While the mas- supply of spare parts; and 6) training of Egyptians ter plan identified a $2,400 million expenditure in to enable handing over of operations within 3 the first 5 years of implementation, the consortium years. estimated the cost to be only $1,800 million. The The Continental Telephone master plan pro- consortium also benefited from the intervention jected that additional telecommunications proj- of Austrian Chancellor Bruno Kreisky, who, as a ects through the year 2000 could amount to over long-time friend of President Anwar Sadat, sent $17 billion. The European consortium would ap- a personal emissary to Egypt to promise addition- pear to be in the most advantageous position to al German and Austrian investments in Egyptian win much of this additional business. industrialization. Siemens Austria promised to finance the renovation of Egypt railway signaling Technical and Managerial Services4 network and its rolling stock. Siemens promised to finance a feasibility study along with Krupp of Following the submission of Continental Tele- West Germany on Egypt’s coal resources. In ad- phone’s master plan for Egypt’s telecommunica- dition, the two companies offered to establish a tions system in 1978, the company put in a bid, management consulting firm along with Egyptian along with AT&T and GTE, to implement the first interests. 5 years of the plan. It lost to the Siemens consor- The other bidders also made their interests tium. In May 1980, a contract was awarded to known to Egyptian authorities, although they Continental Page Consultants (a subsidiary of could not match the low-cost, long-term financing Continental Telephone) and Arthur D, Little Inter- package of the consortium. The U.S. team sent its national for $20.5 million to supply managerial and chairmen and presidents to meet with President technical advisory services. Of the total, $17.4 mil- Sadat and present its proposals. European bidders lion was provided by USAID. Consulting work is held that the U.S. team attempted to tie the sale expected to continue through 1985. to possible U.S. military exports to Egypt and The work is equally divided between the two tried to prevent open tendering. Using a less ag- firms. A. D. Little is focusing on improvements in gressive, but persuasive strategy, CIT-Alcatel planning, management, operations, and training. (France), which was already under contract to in- Specifically, the company will design and develop stall digital electronic switching systems in Egypt, managerial, financial and data systems. Continen- received permission from the French PTT to in- tal is providing more of the technical, plant-related stall equipment originally earmarked for domes- work—rehabilitating existing equipment, design- tic use in order to meet contractual deadlines. ing and installing four electronic exchanges and Although the contract was awarded in Septem- 4 ber 1979, work startup was delayed for over 3 Telephony, June 16, 1980 comrnunic~tor, summer 19R 1 242 . Technology Transfer to the Middle East three outside plant systems in Cairo and three elec- terns that were necessitated by local conditions. tronic exchanges and outside junction cables in In some locations where the equipment was in- Alexandria, and training Egyptian personnel in stalled, climatic and terrain problems resulted in operations and maintenance. The team will award difficulties with the dual diesel generators. hardware contracts to U.S. firms. For 3 years after installation, the firm was under contract to operate and maintain the equipment In the training effort, Continental is attempting and train nationals. Formal training of about 40 to transfer not only specific knowledge on installa- Algerians took place in the United States and Al- tion and repair, but also broader technical concepts geria, with on-the-job training for 3 years side-by- on the operation of telecommunications networks. side with American and British technicians. The On-the-job training is implemented along with ex- training was provided in French or with transla- tensive formal classroom training. Owing to lan- tors. Most trainees had some form of engineering guage barriers, Continental trains Egyptian in- degree, but their formal education and practical structors who then teach the craft employees. experience varied widely. Most visible to the trainers was the apparent lack of motivation by many ALGERIAN PROJECT DESCRIPTION nationals in the program. While some equipment

5 sites were well maintained with low downtime rec- Telecommunications Project ords, others were in poor shape. This project was awarded in 1974 to a U.S. firm The U.S. Government played no role in aiding following a competition involving about 12 com- the company to obtain the original procurement. panies; the United States and Japanese firms were During the course of the project, the program man- the front runners. The apparent critical factors in ager as well as other American businessmen had winning the contract included: 1) a desire by the regular meetings with the U.S. ambassador to dis- Algerian PTT to loosen its dependence on the cuss problems encountered in conducting business French; 2) a desire for reliable U.S. technology, in Algeria. Common difficulties included local tax- and, most importantly, 3) price. The American firm ation, contractual problems leading to nonpay- offered the lowest bid. ment, and problems in getting contractor property Project specifications in the tender were written out of the country after the project was completed. by another American firm that had conducted a 1- Although the ambassador listened, the business- year pre-engineering study prior to the award. This men felt that no action was ever taken by the U.S. firm continued to provide consulting assistance to Government to remedy these problems or to bring the Algerian PTT for 4 to 5 years into the contract. them to the attention of the Algerians on a gov- The contract had open financing, which resulted ernment-to-government level. in payment delays of 2 to 3 years. No irrevocable letter of credit was issued by the PTT to ensure The last Americans involved in the project fin- payment. Apparently, Algerian ministries will not ished their tasks and left Algeria in 1980, Since issue such letters to foreign contractors, but some then, the Algerian PTT has issued a tender to pur- national companies will. As a result, large amounts chase more of the same type of equipment. While of investment capital were put at risk by the the American company that provided the original company. systems is in a dominant position relative to for- The project staff consisted of 42 employees at eign competitors, it has decided not to bid because its peak, mostly American and British technicians, of the investment risks and financial losses it ex- with nationals hired for clerical assistance. No perienced during its initial contract. PTT personnel participated in the project with the contractor’s staff; it was handled as a turnkey IRANIAN PROJECT DESCRIPTION operation. The work involved installation of equipment, sometimes in remote sites. No major modi- Telecommunications Training fications to the equipment were required, although Program 6 additional engineering costs were entailed to deal with special ventilation and sand filtration sys- American Bell International Inc. (ABII), a subsidiary of AT&T, began work in Iran in 1975 to evaluate existing telecommunications facilities 5 This description is based on interviews heId in December 1982 with a program manager at a large U.S. telecommunications manufacturer that has done business in Algeria. Details of the technology itself have *Interview with supplier representative, held in December 1982; Tele- been omitted to retain anonymity. communications, August 1979. —— Ch 6— Telecommunications Technology Transfers ● 243 and to identify future requirements. This work was lished and courses were developed in coordination initially conducted under contract to the U.S. Air with ABII. Force, which was a consultant to the Iranian gov- Hardware training dealing with maintenance ernment. A year later, a master plan for telecom- and repair was developed by several equipment munications service was completed and ABI I was manufacturers. Successful graduates were then to awarded a new contract to help implement the 10- train other employees in the field, This instruction year plan, Chief among ABII‘s tasks was techni- proved to be effective in that it was practical and cal consulting, integrating and supervising other involved hands-on experiences. Courses included: contractors, and training Iranian managers, engi- 1 ) telephone maintenance procedures, 2) telephone neers and technicians in the efficient operation and cable fault locating, 3 ) management training, 4 ) maintenance of the evolving network. ABII re- record keeping for outside plant facilities, 5) cable ported to the managing director of the Iranian laying, 6) outside plant engineering, and 7) sources PTT. of supply. By mid-1977, the training effort began with a Other conceptual and management courses staff of six people. By 1979, before the overthrow tended to be more difficult for the Iranians to of the Shah, the effort included 29 ABII trainers grasp. The management skills courses proved to and over 100 Iranian trainers. Most of the train- be too culture-bound and alien to many Iranians. ing took place in Teheran and several field loca- The PTT also gave higher priority to the techni- tions, although some initial formal instruction was cal courses, giving management and administra- conducted at AT&T facilities in the United States. tive courses second place. Concepts such as team Training was conducted in Farsi by Iranian in- problem-solving skills, which are common in the structors and translators. However, highly tech- West, were difficult for the Iranian trainees to ac- nical hardware courses and management courses cept and implement. Dropout rates in some of were taught in English. these courses reached 50 percent. In retrospect, Iran’s stated goal was to establish self-suffi- some of the ABII trainers felt that these concepts ciency in training within 10 years. With this in should have been introduced more slowly, and a mind, joint training policy committees were more extensive cultural orientation should have formed so that Iranian management would feel a been given to Americans before they were sent to sense of ownership in the contractor’s training pro- Iran. gram. An Iranian training organization was estab-